Financial Modeling Class

Cash Flow Statement

Fall 2019

Bruce Tavel
 Cash Flow Statement
 Tracks the movement of cash through the company over a period of
time

 Shows cash receipts and payments during the period (sources & uses)

 Non-cash transactions, activities wherein no cash moves into or out

of the company’s accounts have no effect on the cash flow statement
but can affect the income statement

 Continuing negative cash flow implies the risk of running out of cash
and insolvency
 Cash Flow Statement: Core Structure
Cash flows are from 3 activities during the specified period of time

• Cash Flows from Operating Activities, CFO

How much cash generated from net income or profit.
Simply, Net Income + Expenses not paid – Revenue not received
=Net Income + Depreciation + Other Non-Cash items +
Deferred Taxes + Changes in Working Capital + /- Discontinued Operations
Changes in Working Capital = Changes in Accounts Payable + Receivable +
Inventory + Prepaid Expenses + Accrued Expenses
• Cash Flow from Investing Activities, CFI
Cash generated or spent from buying / selling assets, businesses,
or other securities.
=Capital Expenditures (CAPEX = PP&E) + Purchase / Sale of businesses,
assets, securities (marketable or non-marketable)

• Cash Flow from Financing Activities, CFF

=Proceeds from borrowings, debt repayment, repurchase / issuance of stock, distributions
Cash Flow Statement: Walmart (WMT)
Open WMT 2012 annual report ( Blackboard Content ) see page 35

• Historic Values
• CFO - Cash From Operating Activities
• Link to “Net Income (after non-recurring events, before distributions)” = e.g., 2012 = $ 16,387 from
Income Statement
• Link to “Loss (income) from discontinued operations” , Income Statement = e.g., 2012 = $ 67
• Note: The Non-Cash Adjustments: Depreciation, Deferred Income Taxes, Other Operating Activities;
WMT annual report; Hard code these items into WMT Model Template Cash Statement
• Link changes in OWC line items, Accounts Receivable… , into WMT Model Template Cash Statement,
recall signs:
assets if OWC(t) – OWC(t-1) > 0 then change in Cash Flow (-) outflow
If OWC(t) – OWC(t-1) < 0 then change in Cash Flow (+) inflow
liabilities if OWC(t) – OWC(t-1) > 0 then change in Cash Flow (+) inflow
If OWC(t) – OWC(t-1) < 0 then change in Cash Flow (-) outflow
• Total all CFO line items
Cash Flow Statement: Walmart (WMT) (Cont’d)
• CFI - Cash From Investing Activities
• Note: “CAPEX”, WMT page 35 of Annual Report, e.g., 2012 = $ 13,510 Hard Code into
WMT Model Template Cash statement
• Compute CAPEX as a % of Revenue, link to Income Statement for Revenue line items
• Note: “Proceeds from disposal of property and equipment”, “Investments and business
acquisitions…”, “Other investing activities”, Hard into WMT Model Template Cash State
• Total all CFI line items
• CFF – Cash Flow From Financing Activities
• Note: “Short Term / Long Term borrowings (repayments)”, “Capital Lease Obligations”,
“Dividends Paid”, “Purchase of WMT stock”, “Other…” ; Hard Code into WMT Template
Cash statement
• Buying stock of other companies is CFI line item, but buying back your own company is
CFF line item
• Total all CFF line items
• Total CFO + CFI + CFF = Total Change in Cash
• Total Change in Cash – Debt line items = Cash available for Debt Paydown
Cash Flow Statement: Walmart (WMT) : Making Projections
• Making Projections
• Cash Statement projection links: Depreciation schedule, Debt schedule, Income Statement, OWC statement (see flow chart)
• Seven methods to consider when making projections:

1. Conservative – use MIN function

2. Aggressive – use MAX function
3. Average – use AVERAGE function
4. Last Year – last year indicative of future
5. Repeat Cycle – volatility goes in repeat cycles
6. Year over Year growth – use yearly growth rate , may include a trend function
7. Project out as a % of an underlying line item – use as underlying a key driver from income statement or balance sheet

• CFO - Cash From Operating Activities

• Refer to Links referenced to recall which projection method(s) employed.

• Link WMT Model Template to Income Statement, projected “Net Income (before distributions, non-controlling interests)” =
”Net Income (Adjusted)”
• Link to Income Statement, projected “Loss (income) from discontinued operations”
• Link to Income Statement, projected “Book Depreciation and amortization”
• Link to Depreciation schedule, projected “Deferred income taxes”
• “Other Operating Activities”, project using MIN function on historical data
• Link to OWC statement projected changes in current assets and current liabilities
Cash Flow Statement: Walmart (WMT) : Making Projections (cont’d)
• CFI - Cash From Investing Activities
• Projected CAPEX = projected CAPEX as % of Revenue * projected Revenue , e.g, CAPEX(2013)=
.03 * 473,767 = $ - 14,213
• “Proceeds from disposal of property…”, “Investments and business acquisitions…” are unclear for future
projections, so keep at zero
• “Other investing activities” given the volatility we keep we keep a cycle method approach, 2013E = 2010, 2014E
= 2011 …

• CFF – Cash Flow From Financing Activities

• Short term borrowings (repayments) / Long term borrowings (repayments) … are debt line items so leave zero for now; they will link
into debt schedule.
• Dividends paid (2013E) = projected dividends per share * projected shares = $ 1.59 /share (see page 53 of annual report ) *
projected basic shares outstanding, Link to Income statement) ,e.g., = 1.59 * 3,361 = - $5,344
• “Purchase of common stock” which is a share buyback; we see in Income statement a basic shares outsg decrease of 99 shares
from 2012 to 2013; so assume a projected buyback of 99 shares * 73.82 (price / share) = - $ 7,308
• “Capital Lease Obligations” leave at zero until Debt schedule completed
• “Other Financing Activities” just being conservative, lacking further knowledge, project 2012
• “Effect of Exchange Rate on Cash” volatile, project using the repeat cycle method
• Total all CFF line items
• Total CFO + CFI + CFF = Total Change in Cash
• Total Change in Cash – Debt line items = Cash available for Debt Paydown
Consolidated Statements of Cash Flows
(in US$ millions) Actuals Estimates

Period Ending January 31 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E

Cash flows from operating activities

Net income 14,883.0 16,993.0 16,387.0 18,685.2 19,748.0 20,874.5 22,068.5 23,334.3
Loss (income) from discontinued operations 79.0 (1,034.0) 67.0 0.0 0.0 0.0 0.0 0.0
Depreciation and amortization 7,157.0 7,641.0 8,130.0 8,591.7 9,194.3 9,833.1 10,510.2 11,227.9
Deferred income taxes (504.0) 651.0 1,050.0 715.9 1,004.7 796.2 609.9 439.2
Other Operating Activities 318.0 1,087.0 398.0 318.0 318.0 318.0 318.0 318.0
Changes in operating working capital
Changes in accounts receivable (297.0) (733.0) (796.0) 146.5 (347.4) (368.3) (390.4) (413.8)
Changes in inventory 2,213.0 (3,205.0) (3,727.0) (148.4) (2,451.7) (2,598.8) (2,754.8) (2,920.1)
Changes in prepaid expenses and other 0.0 0.0 0.0 (773.9) (147.5) (156.4) (165.8) (175.7)
Changes in accounts payable 1,052.0 2,676.0 2,687.0 701.2 2,238.5 2,372.9 2,515.2 2,666.1
Changes in accrued liabilities 1,348.0 (433.0) 59.0 1,425.7 1,174.8 1,245.3 1,320.0 1,399.2
Changes in accrued income taxes 0.0 0.0 0.0 (399.6) 43.5 46.1 48.8 51.8
Net changes in operating working capital 4,316.0 (1,695.0) (1,777.0) 951.5 510.1 540.7 573.2 607.5
Total cash flows from operating activities 26,249.0 23,643.0 24,255.0 29,262.3 30,775.1 32,362.4 34,079.8 35,927.0

Cash flows from investing activities

Payments for property and equipment (CAPEX) (12,184.0) (12,699.0) (13,510.0) (14,213.0) (15,065.8) (15,969.7) (16,927.9) (17,943.6)
Capex as a % of Revenue 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Proceeds from disposal of property and equipment 1,002.0 489.0 580.0 0.0 0.0 0.0 0.0 0.0
Investments and business acquisitions, net of cash acquired 0.0 (202.0) (3,548.0) 0.0 0.0 0.0 0.0 0.0
Other investing activities (438.0) 219.0 (131.0) (438.0) 219.0 (131.0) (438.0) 219.0
Total cash from investing activities (11,620.0) (12,193.0) (16,609.0) (14,651.0) (14,846.8) (16,100.7) (17,365.9) (17,724.6)

Cash flows from financing activities

Short-term borrowings (repayments) (1,033.0) 503.0 3,019.0 0.0 0.0 0.0 0.0 0.0
Long-term borrowings (repayments) (487.0) 7,316.0 466.0 0.0 0.0 0.0 0.0 0.0
Long term debt due within one year 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Capital lease obligations due within one year 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Dividends paid (4,217.0) (4,437.0) (5,048.0) (5,344.7) (5,187.3) (5,029.9) (4,872.5) (4,715.1)
Dividends paid ($/share) 1.59 1.59 1.59 1.59 1.59
Purchase of common stock [treasury stock] (7,276.0) (14,776.0) (6,298.0) (7,308.2) (7,308.2) (7,308.2) (7,308.2) (7,308.2)
Purchase of redeemable noncontrolling interest (436.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Capital Lease Obligations (346.0) (363.0) (355.0) 0.0 0.0 0.0 0.0 0.0
Other (396.0) (271.0) (242.0) (242.0) (242.0) (242.0) (242.0) (242.0)
Total cash from financing activities (14,191.0) (12,028.0) (8,458.0) (12,894.9) (12,737.5) (12,580.1) (12,422.6) (12,265.2)
Effect of Exchange Rate on Cash 194.0 66.0 (33.0) 194.0 66.0 (33.0) 194.0 66.0

Total change in cash and cash equivalents 632.0 (512.0) (845.0) 1,910.5 3,256.8 3,648.7 4,485.2 6,003.1

SUPPLEMENTAL DATA:
Cash flow before debt paydown 1,910.5 3,256.8 3,648.7 4,485.2 6,003.1
 CASH STATEMENT DRIVES THE BALANCE SHEET
• BALANCE SHEET NOTES
• “∆” MEANS CHANGE IN
• +/ - reflects cash statement sign convention

Assets (examples):
• CASH (T) = CASH (T-1) + ∆CASH (T)
• ACCTS_REC (T) = ACCTS_REC(T-1) - ∆ACCTS(T)
• INVENTORY(T) = INVENTORY(T-1) - ∆INVENTORY(T)
• PP&E(T) = PP&E(T-1) - DEPREC(T) – CAPEX(T)
• OTHER_ASSETS&DEFERRED_CHARGES(T) = OTHER_ASSETS&DEFERRED_CHARGES(T-1)
+ OTHER_INVEST_ACTIVITIES(T)
+ OTHER_OPERATING_ACTIVITIES(T)
 CASH STATEMENT DRIVES THE BALANCE SHEET (cont’d)

• Liabilities (examples):
• ACCTS_PAY(T) = ACCTS_PAY(T-1) + ∆ACCTS_PAY(T)
• ACCRUED_INC_TAX(T) = ACCRUED_INC_TAX(T-1)
+ ∆ ACCRUED_INC_TAX(T)
• LT_DEBT(T) = LT_DEBT(T-1) + LT_DEBT_BORROW - REPAY(T)
• RETAINED_EARNINGS(T) = RETAINED_EARNINGS(T-1)
+ NET_INC(after non-recurr-events,T)
- DIV_PAID(T) - STOCK_PURCH(T)