ACCT 460

DUNG LE

HOMEWORK 1

I 2 - 50
A. Depreciation does not involve a cash inflow or outflow. Depreciation is a non-cash
expense since business never pay anything in this. When the asset was purchased, it
already was listed as an outflow under Investing Activities. Depreciation is estimated as
loss of value of the asset. Net income is reduced by the depreciation expense without the
effect of reducing your cash. In order to reconcile net income to cash flows from
operations, depreciation is added back
B. Subtract the current year accounts receivable balance from the previous year balance.
This calculates the decrease in accounts receivable; this equals the cash inflow from the
change in accounts receivable. The accounts receivable asset shows how much money
customers who bought products on credit still owe the firm; the more credit customers are
taking, the longer it is taking to pay, which means less cash for the company. This asset
is an expectation of cash that the business might receive. Cash wont increase until the
business collects money from customers.
An increase in inventories means that the firm spent more cash to acquire the
inventories; therefore it is a cash outflow.
A decrease in trade payables means the firm is paying debts, invoices
quicker, resulting in cash outflow. In contrast an increase in trade payables
means the business has not paid the invoices yet, therefore they are holding the
cash in the business longer, meaning its a cash inflow.
C. Investing in property and equipment as Expenditures is the spending of money to buy or
fix assets. Therefore Property plant and equipment will be treated as tangible assets that
the firms holds for its own uses. Depreciating a capital asset means allocating its worth
over a number of years since the asset will be depreciated in result of reduction in the
asset value.
D. In its 2012 cash flow from financing activities the firm provides a summary of its
liquidity and capital resources activities. It tells that the firm repurchased million of its
own shares, which adds to the $2,635 million in the financing cash flow schedule. It also
paid out $3,665 million in dividends to shareholders. It raised $1,980 loan issuance, $429
from proceeds of share issuance and $687 in short-term debt. They used portion of these
proceeds to pay off a past term loan. Net cash used during 2012 was primarily driven by
higher cash dividends paid to stockholders and partially by common stock repurchases
E. Cash Flow from Operations
This is the source of a company's cash. The firms changes in cash mostly comes from
collecting money from customers, acquiring new inventories, profit from sales and
paying off the taxes, interests, debts and expenses. In this section of the cash flow
statement, net income is adjusted for non-cash charges such as amortization and
depreciation and change in working capital items - operating assets and liabilities in the
balance sheet's current position.
Cash Flow from Investing
Investing activities generate cash outflows, such as capital expenditures for plant,

ACCT 460

DUNG LE

HOMEWORK 1

property and equipment, business acquisitions and the purchase of investment securities.
Inflows come from the sale of investment securities and disposal of PPE. Outflows come
from purchase of new plant, property and equipment, acquisition of business operation,
and purchase of intangible assets and non-current asset investments.
This use of cash is necessary for ensuring the proper maintenance of company's physical
assets to support its efficient operation and competitiveness.
Cash Flow from Financing
Debt and equity transactions are the main financing activities. Companies continuously
borrow new debt and loan and repay loan. However in 2012 the firm repurchased more of
its own stocks than issuing new stocks. Most of outflows come from cash dividend
payment to stockholders which is the most important item for investors, since cash was
used other than profits to pay dividends.
P 1 - 36
2012

2011

ROA

8.88%

8.07%

ROE

32.51%

29.55%

PROFIT
MARGIN

8.31%

7.63%

ASSET
TURNOVER

1.069007 1.057994
2012

2011

2010

21,063

20,846

19,746

1,750

1,591

1,843

19,873

19,373

19,864

4,985

5,249

5,917

SALES
NET INCOME
TOTAL
ASSETS
EQUITY
Net Income will be driving change in ROA

ACCT 460

DUNG LE

HOMEWORK 1

ROE = Net Income/Equity - so if ROE is 32.51% and then the firm uses $1,750 to buy back
shares, the equity decreases by the cash used to buy back shares.