Understanding The Cash Flow Statement

Transcription

1 Financial Reporting & Analysis Understanding The Cash Flow Statement Reading

2 Components and Format of Cash Flow Statement Apple Inc. - Cash Flow Statement Year ended 26 September Net Income 4,834 5,704 Adjustments: Depreciation and amortization Stock compensation expense Deferred income taxes (368) (519) Other (Operating) Change in operating assets and liabilities: Accounts receivable (785) (939) Inventories (163) 54 Prepaid expenses and other current assets (2,450) (2,396) Accounts payable Deferred revenue 5,642 6,908 Other accrued liabilities 1,279 (184) Cash flows from financing activities: Net Change in Working Capital 4,119 3,535 Issuance of common stock Net cash provided by operating activities 9,596 10,159 Common stock repurchases - - Issuance of Debt - - Cash flows from investing activities: Proceeds from sale of subsidiary st - - Purchases of short-term investments (22,965) (46,724) Dividends - - Proceeds from sales and maturities of short-ter 11,804 19,790 Other (financing) Purchases of investments 4,439 10,888 Net cash provided by financing ac 1, Proceeds from sales and maturities of investme (38) (101) Acquisition of property and equipment (Capex) (1,091) (1,144) Net increase in cash and equivalen 2,523 (6,612) Purchases of technology licenses (108) (69) Acquisition of businesses, net of cash and cash (220) - Cash and cash equivalents, beginn 9,352 11,875 Other (Investing) (10) (74) Net cash used in investing activities (8,189) (17,434) Cash and cash equivalents, end of 11,875 5,

3 Components of Cash Flow Statement Net Income from the income statement does not clarify the position of cash for a company The cash flow statement has 3 components under both IFRS and US GAAP Operations Activities: Day to day activities that create revenues Cash inflows resulting from cash sales Cash outflows resulting from cash payments for inventory, salaries, taxes, etc. Cash receipts or payments for securities held for trading purposes is shown in the operating activities. 3

4 Components of Cash Flow Statement Investing Activities: Includes purchase and sells of investments and securities Investments will include property, plant and equipment Following is excluded from the investing activities Securities considered under cash (shown in cash and cash equivalents of balance sheet) Trading securities which are considered under operating activities Financing Activities: Obtaining or repaying capital such as equity or debt Cash inflows include receipts from issuing stock or bonds Cash outflows include cash payments to repurchase stock, pay dividend, repay debt, etc. Indirect financing like Accounts payable Is not a part of financing activities but qualifies as a part of operating activities 4

5 Classification of Cash Flow Example Company recorded following transactions in 2009 Proceeds from issuance of long term debt $1000,000 Equity in earnings of affiliate $250,000 Purchase of equipment $750,000 Proceeds from sale of equipment $300,000 How much is the net cash from investing activities as reported by the company? 5

6 Classification of Cash Flow Solution The two items that would impact the cash from investing activities include Purchase of equipment $750,000 Proceeds from sale of equipment $300,000 $450,000 Thus the changes in the investing activities would be -750, ,000 = - 450,000 Thus net cash from investing activities reported by the company is - $450,

7 Differences between IFRS and US GAAP Classification of cash flows IFRS US GAAP Interest received CFO or CFI CFO Interest Paid CFO or CFF CFO Dividends received CFO or CFI CFO Dividends paid CFO or CFF CFF Bank overdrafts Taken as a part of cash and cash CFF equivalents in BS Taxes Paid CFO or CFI & CFF CFO 7

8 Direct v/s Indirect Cash Flow Statement Direct vs. Indirect method refers only to the presentation of the Cash flow from operations. The end value of both methods direct and Indirect for CFO is the same Cash flow from investing and financing is same for both methods Cash Flow from Operating Activities Remarks Direct Method Cash received from customers Cash paid to suppliers and employees Interest Paid Income taxes paid Indirect Method Net Income Add: Non cash expenses Less: Non Operating Incomes/(expenses) Less: Increase/(Decrease) of Working Capital Net Cash from operating activities Net Cash from operating activities Cash inflows and outflows are identified in this method This method begins with Net Income and makes necessary adjustments to get CFO Remember Increase in Asset is Use of Cash and Decrease in Asset is Source of Cash Increase in Liability is source of Cash and Decrease in Liability is use of Cash 8

9 Cash Flow Statement Linkages and preparation To understand the linkages take the following Income Statement and Balance Sheet as sample and construct the cash flow statement in the Direct and Indirect Format Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciatio (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, * New Equipment worth $1300 was purchased in 2009 year Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15,

10 Step 1 Cash Received From Customers Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciati (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) * New Equipment worth $1300 was purchased in 2009 year Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15, Revenue 23,598 Less: Increase in Accounts receivable (55) Cash collected from Customers 23,

11 Step 2 Cash Paid to Suppliers Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciati (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) * New Equipment worth $1300 was purchased in 2009 year Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15, COGS 11,456 Add: Increase In Inventory 707 Purchases from Suppliers 12,163 Less: Increase in Accounts payable (263) Cash Paid to suppliers 11,

12 Step 3 Cash Paid to Employees Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciati (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) * New Equipment worth $1300 was purchased in 2009 year Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15, Salary and Wage Expenses 4,123 Less: Increase in Salary and Wage Payable (10) Cash paid to employees 4,

13 Step 4 Cash Paid for Other Operating Expenses Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciati (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) * New Equipment worth $1300 was purchased in 2009 year Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15, Other operating expenses 3,577 Add: Increase in Prepaid Expenses (23) Less: Increase in Other Accrued Liabilities (22) Cash Paid in Othe operating activities 3,

14 Step 5 Cash Paid For Interest Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciati (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) * New Equipment worth $1300 was purchased in 2009 year Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15, Interest Expense 246 Less: Increase in Interest Payable 12 Cash Paid for Interest

15 Step 6 Cash Paid for Income Taxes Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciati (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) * New Equipment worth $1300 was purchased in 2009 year Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15, Income Tax expense 1,139 Less: Increase in Tax Payable (5) Cash Paid for Income Tax 1,

16 Step 7 Cash Received from Equipment Sale Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciati (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) * New Equipment worth $1300 was purchased in 2009 year Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15, Beg. Equipment Value 8,555 Add: Cash Paid for purchase of Equipments 1,300 Less: End Equipment Value (8,798) Book Value of Equipment Sold 1,057 Beg. Acc. Depreciation 2,891 Add: Depreciation Charged This period 1,052 Less: End Acc. Depreciation (3,443) Acc Depreciation of Equipmet charged 500 Book Value of Equipment Sold 1,057 Less: Acc Depreciation of Equipment (500) Net Book Value of Equipment Sold 557 Add: Gain on Sale of Equipment 205 Cash Received from Sale of Equipment

17 Step 8 Cash Paid as Dividend Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciati (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) * New Equipment worth $1300 was purchased in 2009 year Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15, Beg Retained Earning 2,876 Add: Net Income 2,210 Less: End Retained Earning (3,966) Dividends Paid 1,

18 Step 9 Reconciliation to Cash Income Statement Balance Sheet Difference Assets Revenue 23,598 Cash 1,011 1,163 (152) Cost of Goods Sold 11,456 Accounts Receivable 1, Gross Profit 12,142 Inventory 3,984 3, Salary and Wage Expenses 4,123 Prepaid expenses (23) Depreciation expense 1,052 Total Current Assets 6,162 5, Other operating expenses 3,577 Land Total operating expenses 8,752 Buildings 3,680 3,680 - Operating Profit 3,390 *Equipment 8,798 8, Other Revenues Gross PPE 12,988 12, Gain on sale of equipment 205 Less: Accumulated Depreciati (3,443) (2,891) (552) Interest Expense (246) Total Long Term Assets 9,545 9,854 (309) Other Income/(Expense) (41) Total Assets 15,707 15, Income Before Tax 3,349 Income Tax expense 1,139 Liabilities & Shareholders' Equity Net Income 2,210 Accounts Payable 3,588 3, Salary and Wage Payable Interest Payable (12) Income Tax Payable Other Accrued Liabilities 1,126 1, Current Liabilities 4,916 4, Long Term Debt 3,075 3,575 (500) Total Liabilites 7,991 8,203 (212) * New Equipment worth $1300 was purchased in 2009 year Shareholders's Equity Common Stock 3,750 4,350 (600) Retained Earnings 3,966 2,876 1,090 Total Liabilities and equity 15,707 15, Changes in Long Term Debt & Common stock are reflected in the Cash Flow from Financing Activities When we complete the above steps we have completed the reconciliation of Net Income to Cash in the Indirect method or we obtain the cash balance in the Direct Method. 18

19 Cash Flow Statement Direct Method Cash flow from Operations Cash collected from Customers 23,543 Cash Paid to suppliers (11,900) Cash paid to employees (4,113) Cash Paid in Othe operating activities (3,532) Cash Paid for Interest (258) Cash Paid for Income Tax (1,134) Cash flow from Operations 2,606 Cash flow from Investing Activities Cash Paid for purchase of Equipments (1,300) Cash Received from Sale of Equipment 762 Cash flow from Investing Activities (538) Cash Flow from Financing Activities Changes in Long Term Debt (500) Changes in Common Stock (600) Dividends Paid (1,120) Cash Flow from Financing Activities (2,220) Net Change in Cash (152) BOP Cash 1,163 EOP Cash 1,

20 Cash Flow Statement Indirect Method Cash flow from Operations Net Income 2,210 Add: Non Cash Expenses Depreciation expense 1,052 Less: Non Operating Income Gain on sale of equipment (205) Less: Changes in Working Capital Accounts Receivable (55) Inventory (707) Prepaid expenses 23 Accounts Payable 263 Salary and Wage Payable 10 Interest Payable (12) Income Tax Payable 5 Other Accrued Liabilities 22 Cash flow from Operations 2,606 Cash flow from Investing Activities Cash Paid for purchase of Equipments (1,300) Cash Received from Sale of Equipment 762 Cash flow from Investing Activities (538) Cash Flow from Financing Activities Changes in Long Term Debt (500) Changes in Common Stock (600) Dividends Paid (1,120) Cash Flow from Financing Activities (2,220) Net Change in Cash (152) BOP Cash 1,163 EOP Cash 1,011 20

21 Salient points for analyzing cash flow statement What are the major sources and uses of cash (CFO, CFI or CFF) Is CFO enough to cover the capital expenses? Analyze cash coming from operations Is it greater than net income Check CFO for its consistency Analyze cash coming from investing activities Is company spending on PPE What are the new acquisitions done by the company? Analyze cash coming from financing activities Is company repaying the capital? How much are dividends returned to the owners? 21

22 Common size statement There are 2 ways to show the common size cash flow statement Show all items as percent of Revenues Show all inflows as a percent of total inflows and all outflows as a percent of total outflows Applications of common size statement For Trend analysis Forecasting of future cash flows 22

23 Common size cash Flow Statement Apple Inc. - Cash Flow Statement Year ended 26 September Net Income 13.23% 17.56% Adjustments: Depreciation and amortization 1.29% 2.16% Stock compensation expense 1.41% 2.19% Deferred income taxes -1.01% -1.60% Other (Operating) 0.06% 0.08% Change in operating assets and liabilities: Accounts receivable -2.15% -2.89% Inventories -0.45% 0.17% Prepaid expenses and other current assets -6.71% -7.38% Accounts payable 1.63% 0.28% Deferred revenue 15.44% 21.27% Other accrued liabilities 3.50% -0.57% Cash flows from financing activities: All cash flow items taken as a percent of revenues for that period Net Change in Working Capital 11.27% 10.88% Issuance of common stock 1.32% 1.46% Net cash provided by operating activities 26.26% 31.28% Common stock repurchases 0.00% 0.00% 0.00% 0.00% Issuance of Debt 0.00% 0.00% Cash flows from investing activities: Proceeds from sale of subsidiary st 0.00% 0.00% Purchases of short-term investments % % Dividends 0.00% 0.00% Proceeds from sales and maturities of short-ter 32.31% 60.93% Other (financing) 1.73% 0.58% Purchases of investments 12.15% 33.52% Net cash provided by financing ac 3.05% 2.04% Proceeds from sales and maturities of investme -0.10% -0.31% Acquisition of property and equipment (Capex) -2.99% -3.52% Net increase in cash and equivalen 6.91% % Purchases of technology licenses -0.30% -0.21% Acquisition of businesses, net of cash and cash -0.60% 0.00% Other (Investing) -0.03% -0.23% Net cash used in investing activities % % 23

24 Free Cash Flow FCF is used to value firms It represents the cash company can use for discretionary purposes FCFF = NI + NCC WCInv + Int*(1 T) FCInv Free Cash to Firm (FCFF) CFO = NI + NCC WCInv NI: Net Income NCC: Non Cash Charges WCInv: Change in working capital Int: Interest Expense T: Tax rate FCInv: Capital Expenses FCFE = CFO FCInv + Net Debt Incresase Free Cash to Equity (FCFE) 24

25 Financial Statement Analysis Common Size Analysis - It involves expressing financial data in relation to a single financial statement item and generally bases being total assets or revenue. Cross Sectional Analysis It involves comparison of one financial statement item with the same metric of another company of different size. Trend Analysis - This analysis of financial statements provides information regarding historical performance and growth and thus becomes important for management and analysts. 25

26 Cash Flow Ratios Performance Ratios Calculation Measurement Cash flow to revenue Cash return on assets Cash return on equity Cash to income Cash flow per share CFO / Net Revenue CFO / Average Total Assets CFO / Average Shareholders' equity CFO / Operating Income (CFO - Preferred Dividends) / Number of common shares outstanding Cash generated for every $ revenue Cash generated for every $ assets Cash generated for every $ equity Cash generation ability of operations Per share operating cash flow Coverage Ratios Calculation Measurement Debt Coverage CFO / Total Debt Financial Leverage Interest Coverage (CFO + Interest Paid + Taxes Ability to meet interest Paid) / Interest Paid obligations Reinvestment CFO / Capital Expenses Ability ot acquire assets with operating cash flows Debt Payment CFO / Cash paid for long term Ability to repay debts debt repayment Dividend Payment Total long term debt / Total Financial risk and equity financial leverage 26