沃顿商学院全套笔记-二十一-
沃顿商学院全套笔记（二十一）
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P65：17_3 1 1 经营、投资和融资现金流.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello， I'm Professor Brian Boucher。 Welcome back。 This week we're going to spend the entire week talking about the Statement of Cash Flows。
and we're going to need the whole week to get through it。 In this first video。
we're going to talk about how to classify transactions into operating， investing。
and financing activities， which is the first step toward putting together。
and then analyzing the Statement of Cash Flows。 We've got a lot of work to do， so let's get to it。
The Statement of Cash Flows is going to report changes in cash due to operating。
investing， and financing activities over a period of time。
so a period like a fiscal quarter or a fiscal year， any period between two balance sheet dates。
Statement has the following format， kicks off with net cash from operating activities。
then cash from investing activities， and cash from financing activities。
You add them all up and that should be the same as the net change in cash balance。
If the company does any non-cash transactions， like they trade a piece of land for a building。
those have to be disclosed at the bottom of the Statement of Cash Flows。
To other required disclosures， companies must tell you cash interest paid。
and income tax is paid for reasons that we'll talk about in later videos。
But these disclosures either will appear at the bottom of the cash flow statement。
or somewhere else in the footnotes。
Cash is cash。 It is what it is。 Why divide it into three categories？
You professors just have too much time on your hands。
Do you always have to make everything so difficult？
If you remember back to one of the first videos in the course。
we looked at this example Dave's Car Transport Service。 In that example。
we saw why it's important not to look at total cash flow。
because all Dave had to do to increase his total cash flow was either borrow more money。
or raise more equity。 What we really want to know is how much cash flow is being generated by operating the business。
How much cash flow is the business investing in the future？
And how is the business financing itself？ That's why it's important to look at these three buckets。
and separate the cash flows in operating， investing and financing。
Let's talk about each of these three buckets of activities in more detail。
starting with operating activities。 These are transactions related to providing goods and services to customers。
and paying expenses related to generating revenue。
The best way to think about this section is it's the analogy to the income statement。
So transactions that appear on the income statement。
we tend to see their cash impact in the cash from operating activities section。
So we'll see cash inflows like collections from customers。
but other sources of revenue or positive income like receiving interest or dividends on investment。
And once you cash outflows like payments as pliers， payments to employees。
payments of interest and tax， other operating and disbursements like payments for advertising。
legal fees and other things like that。 I see the words interest and dividends on investments。
Wouldn't that be an investing activity？ Yeah， a case can certainly be made that dividends received and interest received。
should be investing cash flows because there returns on your investment。
But these items also appear on the income statement and the financial accounting standards， board。
the FASB， decided that they wanted them as part of operating cash flow to provide。
comparability between the income statement and cash from operations。
But but I have the feeling we'll be talking about these items more as the video goes along。
There are a few types of transactions that appear on the income statement that we need to make。
special adjustments for on the cash flow statement because even though they're on the income statement。
they will not be part of cash from operating activities。
The first type of adjustment is for depreciation， amortization and other non-cash items。
These will affect income， but there's no cash flow involved。
so we need to make an adjustment for them。
Also， sometimes we get gains or losses on selling something like property plant equipment。
which affect our income statement， but we don't want to show that cash flow in the operating。
activity section。 We want to show it in investing activity section， so we need to adjust for that。
We're going to make these adjustments later on in the week， but I just wanted to put them in the。
back of your mind right now。 The next bucket is investing activities。 These are transactions。
related to acquiring or disposing long-term assets。 So cash inflows like selling property。
plant equipment， selling intangible assets， selling investments， or selling a whole business。
a business。
divestiture。 Cash outflow examples would be acquiring a business， acquiring property plant。
equipment， acquiring intangible assets or purchasing investments。
What if I buy stock as an investment， but I only intend to hold it for six months？
Would that be a long-term asset？ Would that be an investing activity？
You bring up an excellent point。 There's a rule of thumb that any asset that we intend to hold。
for more than a year would be an investing activity， whereas any asset we intend to hold。
for less than a year would be an operating activity。 But this is a rule of thumb。 It's not an iron。
clad law， and there are going to be places where we see that this rule of thumb is violated。
In the case of investments， there's a whole set of rules around whether the investment should be。
operating or investing activities， and we'll talk about those later in the course。
And the last bucket is financing activities。 These are transactions related to owners or。
creditors except for interest payments。
If some butts were candy and nuts， every day would be Christmas。 Interest is paid to creditors。
Payments to creditors are financing activities。 There we go。 Interest payments are financing。
activities。 QDD。 It's hard to argue with a QED， but this is a situation where the FASB wanted。
comparability between the income statement and cash from operations。 And so they decided to include。
interest payments as an operating activity to parallel the interest expense that's in net income。
Having said that， a lot of investors and analysts disagree with this classification。
and want to pull it out。 And if you remember earlier in the video， I mentioned that companies。
have to report cash paid for interest somewhere in their financial statements。
That disclosure is there， so if people don't want cash paid for interest in operating cash flows。
they can just find this disclosure and take it out。
So what financing activities will include are cash inflows such as the money you get from。
issuing new stock or re-issuing treasury stock。 That's when you take the stock that you previously。
bought back， which we call treasury stock and then sell it back to the public。 Or money you get。
from borrowings from banks or other creditors。 Cash outflows include paying dividends to your。
shareholders， purchasing your treasury stock， so repurchasing your own stock， and then payment。
of principal on debt。 But as we mentioned earlier， not the payment of interest。 So putting it all。
together， the statement of cash flows is going to have these operating activities， investing。
activities， and financing activities listed in this order， showing you the three different buckets。
where a company's cash flow comes from or goes to during a period。
I believe your classification of interest and dividends is not correct。 After you clashed my。
question earlier， I texted my sister who works in Hong Kong。 She confirmed that interest and。
dividends received are investing activities。 What do you have to say about that？ Well。
I'm certainly not going to argue with your sister from Hong Kong。
especially since we're both right on this one。 As it turns out， this is one of those situations。
where the treatment under US GAAP is different than the treatment under international financial。
reporting standards or IFRS。 I've been giving you the US GAAP treatment。
but the IFRS treatment does， differ。 Let me jump back to the slide to show you these IFRS differences。
We're talking about。
transactions where a company receives interest and dividends on investments or pays interest or。
pays dividends。 Under IFRS， interest and dividends received and paid can be classified as operating。
investing or financing as long as the company's consistent。 The idea is。
long as the company does the same thing year after year， investors and analysts will know where to。
find it and can make adjustments if they think it's necessary。 But under US GAAP， these four items。
all have to be in the buckets that we show on the slide。 There's no discretion。
So that's one of the， differences that remain between US GAAP and IFRS。
Now that we've defined operating investing。
and financing activities， I'd like to do a simple example to show you what we can learn by dividing。
cash flow into these three buckets。 So let's say we're a startup company， we're pharmaceutical and。
we're trying to come up with a medicine that will prevent gray hair。
Not that there's anything wrong。
with gray hair。 So anyway， all you would have to do is pop a pill and you'd no longer have gray hair。
As a startup company， we're likely going to have negative cash from operations。
We may have a initial。
version of our drug that's working for which we get some revenue， but we have a lot of negative。
cash flows as we have a lot of operating costs and running the business and we're also investing in。
R&D。 Our investing cash flow is a big negative because we have to go out and create facilities and。
buy equipment and invest in all these long-term assets to get the business up and running。
And then we have a big positive financing cash flow。 We go out and raise money from the stock。
market or venture capital firms。 We borrowed money from banks or the public markets。 We need。
all that money coming in to finance our investments and the negative cash from operations。
The bottom line in this case is zero net cash flow that doesn't necessarily need to be the case。
but I will just carry that throughout。 Now our company starts to have some breakthroughs。 We move。
into the early growth stage。 Drug seems to be working pretty well。 People are taking the medication。
that gray hair goes away and we're starting to get positive operating cash flows。 As more and more。
doctors prescribe our medicine， we get revenue that comes in and covers the operating costs。
We still have big negative investing cash flow because we're trying to grow the business。
and we're trying to invest in new property plant equipment to meet demand for our drug。
And maybe we decide to go out and acquire another company to diversify our product line。 So。
maybe we acquire a company that makes pro-blonde medication so you can take the pill and your hair。
will turn blonde even if it was say dark brunette to begin with。
Not that there's anything wrong with， dark brunette hair either。 So anyway。
we have the big negative investing cash flow。 We cannot fund。
that investing cash flow just out of operations。 So we have a positive financing cash flow as。
that we need to go out and raise money either from the stock market or from banks and other creditors。
Hey， this is actually useful information。 Can we get more of this？ Hey， I'm glad you liked it。
I've got two more examples， so let's get back to it。
Next， our company moves into the mature phase of its lifecycle。 We've got patents on our anti-gray。
hair drug， our pro-blonde hair drug， and we can just print money as a result。
There's a lot of revenue。
coming in covering all the expenses of running the business。 So we have a high cash from operations。
We still have a fairly high level of investing cash outflows because we're still growing。 We have。
capital expenditures that we need to have to meet the demand for our product。 Maybe we're doing a。
couple of other strategic acquisitions， but now we're able to pay back some of the financing。 So we。
have negative financing cash flows。 We use the excess cash from operating after covering the。
investing cash flow to go out and buy back stock or pay back debt or maybe start to pay dividends to。
our shareholders。 Then we move into the decline stage or a lifecycle。 All of our patents have。
expired。 Customers can now buy generic anti-gray hair medication or generic pro-blonde medication。
There's a few holdouts that still insist on buying our original name brand， but our cash from。
operations have gone down substantially。 Our investing cash flows have also gone down substantially。
because we just don't have a lot of other ideas for new investments。 And so what we end up doing is。
continue to have a negative financing cash outflow。
We're taking our excess cash from operations and。
using it to buy back stock， repay debt or pay dividends， which at this point is essentially just。
saying to our shareholders， we don't have any projects to invest in， so we're just going to give。
you the money and maybe you can find something to do with it because we certainly can't。
And then I guess the last stage would be we either go bankrupt or acquired and our cash flow。
statement would disappear altogether。 So I think this video showed that it's fairly straightforward。
to classify cash flow activities into the operating， investing and financing buckets。
but it's not always straightforward。 In the next video， we're going to apply these classifications。
to the relic spotter case and there we'll see that there is judgment that does apply in some。
situations which makes this a bit trickier than it first seems。 I'll see you next video。
See you next video。 [ Silence ]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P66：18_3 1 2 文物寻宝案例部分 5.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello and Professor Brian Buchay， welcome back。 In this video we're going to dig out the relic spotter case that we worked on during the。
first two weeks and go through its cash flow transactions to classify them into operating。
investing and financing buckets which is the first step towards putting together relic。
spotter statement of cash flows。 Let's get started。
Let's start with transaction number one for the relic spotter case。
In this transaction relic spotter sold shares to investors。
In the journal entry we debited cash for $250，000 because the company received cash and then。
credited common stock and APEC。
So over here on the right hand side of the screen we'll keep track of all the cash flows。
and I'll have you try to guess whether the cash flow is operating， investing or financing。
So let me put up the pause sign and guess which bucket it would go into。
The answer here is financing。 One of the definitions of a financing activity is cash flows with our owners so if we're issuing。
stock we're getting stock from the owners of the company which would make it a financing。
cash flow。
Next transaction number three。 Come， excuse me。 Where is transaction number two？
Does the cash flow statement only include that number transactions or did you make a。
mistake as you often do？ Hey， wait a minute。 I haven't made that many mistakes。 Well。
at least not yet。 There's no transaction two in this case because there was no cash involved for transaction。
two in the relic spotter case。 It was the transaction where park was borrowing money on our own account and we didn't even。
record it。 If you go back and look at the relic spotter journal entries the only ones that we have。
to deal with are the ones that have either debits or credits to cash。
So anyway in transaction number three， relic spotter paid $3，900 cash in legal fees to incorporate。
the business。 How to classify that as operating investing or financing？
The answer here is operating cash flow because this is one of the costs or expenses that。
relic spotter needs to incur to run the business。
Could we not call this an investing activity？ After all。
incorporating the business is a long term cash flow， at least we hope。
You raised a really good point because we do hope that this cash flow will have a long。
lasting benefit。 But if you remember we decided to expense this cash flow on the income statement so to provide。
comparability we're going to treat it as an operating activity on the cash flow statement。
If we had created a long term asset then we probably would have treated it as an investing。
activity。 As you'll see a lot of these are going to be really tricky to classify because there's。
a lot more art than science in trying to figure out what bucket to put these in。
Next in transaction number four， relic spotter bought land and building with a mortgage and。
$31，000 of cash。
So go ahead and try to classify this cash flow as operating investing or financing。
The answer here is obviously 155，000 cash outflow for investing and 124，000 cash inflow for。
financing。 Well now， I see a credit to cash for $31，000。 We bought land and building。
Why is this not $31，000 of cash flow for investing activities？ Okay。
I said obviously when I provided the answer but this one's far from obvious。
The issue here is that we did one journal entry but there were really two separate transactions。
First we borrowed $124，000 cash from a bank under a mortgage。
That's a financing activity。
The second is that we use that cash plus $31，000 of our own cash to buy $155，000 of land and。
building。 That's an investing activity。
To provide our investors and analysts a clear picture of what we're doing， we need to split。
this into the two transactions。 We really borrowed $124。
000 from the bank under a financing cash flow and we really paid。
$155，000 cash for land and building as an investing cash flow and that's what we need。
to show on the statement of cash flows。
Question number five， relic spotter paid $33，000 cash for renovation work to the building。
Try to classify that as operating， investing or financing。
The answer here is investing。 It should be an investing cash outflow of $33，000。
I could make a case for operating here。 This seems a lot like routine maintenance to me which would be an operating activity。
We talked about this briefly when we did the original transaction but the key question here。
is does this expenditure represent a capital improvement or routine maintenance？
A capital improvement would be anything that increases the value of the building or its。
useful life。 We would add that to the building account and depreciate it over time and we'd consider。
the cash flow and invest the activity。 The main maintenance is something you have to do no matter what。
It's already built into the assumptions about the value of the building and its life。
It gets expensed immediately and then it would be considered an operating cash flow。
So that's the distinction and we're going to talk about it more later in the course。
Transaction number six， relic spotter paid $120，000 cash to buy metal detectors。
Is that transaction operating， investing or financing？
And the answer is $120，000 investing cash outflow。
I could make a strong case for operating here。 Our core business is renting metal detectors。
Why would the purchase of said metal detectors not be an operating activity？
You are correct that our business is renting metal detectors。
But we're going to rent these metal detectors over and over and over for up to two years。
which makes them more like equipment， a long term asset and makes the treatment of an。
investing cash flow more appropriate。 If we are buying these metal detectors and immediately reselling them like inventory。
then we would call it operating。 Or if we bought them and we were going to rent them for less than a year。
then we might consider， them operating。 But the fact that we're going to have them for more than a year up to two years makes。
this feel more like an investing activity。 Okay， next we're going to skip transaction seven because that was a non-cash transaction。
Relic spotter had purchased inventory on account and moved to transaction eight where。
relic spotter had paid $2，100 cash for a three year software site license。
Why don't you try to guess whether that's operating investing or financing？
The answer here is an investing cash outflow of $2，100。
And before the virtual students jump in， I'll just tell you this is like the prior two where。
we're investing in a long term asset。 So that's going to make it an investing activity because we're investing for more than a year。
Transaction number nine。 Relic spotter paid $8，000 cash for advertising over the next year。
Is that operating investing or financing？
The answer here would be operating。 The advertising that we're prepaying is not more than a year。
So by our general rule of thumb， we would call this an operating activity rather than。
an investing activity。 These last two actually make sense。 What am I missing？
You're not missing anything here。 This one year rule of thumb tends to work pretty well。
If you have an expenditure that's going to benefit you for more than a year， we tend。
to call it investing。 If it's going to benefit you for less than a year。
we tend to call it operating。 And there are not many exceptions to that。 So one exception would。
well， let's not overcomplicate this now。 I'll just say good job and let's move on。
Moving on to transaction number 10。
Relic spotter lent $5，000 cash to Rebecca Park as a loan， which then she has a year to。
repay。
Is that operating investing or financing？
And the answer is a $5，000 operating cash outflow。
So much for things making sense。 I thought transactions with creditors were financing。
This is a loan。 Why isn't this financing？ Actually in this case。
relic spotter is the creditor because Rebecca Park is borrowing， money from the company。
If the company were borrowing money from Rebecca Park， then yes， it would be a financing activity。
So the question now is if relic spotter is lending money to Rebecca Park， is that an。
operating or an investing activity？ I decided to make it an operating activity because the loan was only one year。
If the loan was longer than a year， say two years or three years or five years， then I。
probably would have made it an investing activity。
But it's not a financing activity because the company is the creditor here and if the。
company is the creditor， then it's not a financing activity。
Next we skip another couple non-cash transactions to go to transaction number 13。
Here relic spotter paid $2，000 cash to its supplier。
This was for the inventory that it bought out account in transaction seven。
So is this $2，000 cash paid to the supplier operating investing or financing？
The answer here is a $2，000 operating cash outflow。
Go on。 You are making sense again。 Yeah， a payment to a supplier is one of the examples we use to define an operating activity。
By the way， do you know where the smartest people in America work？
At the US Mint because all they do all day is make sense。 In transaction number 14。
relic spotter paid $2，500 cash to its shareholders for its dividend。
This was the dividend that they declared in transaction 12。
That's actually paid in cash in transaction 14。 So is this $2。
500 cash paid for dividends operating investing or financing？
The answer here is financing a $2，500 financing cash outflow。
Makes sense。 Go on。 Yes， paying dividends is one of the examples we use to define a financing activity。
By the way， do you know where you can also find smart， reasonable people？
A perfume factory because all they do all day is make sense。
Next in transaction 15， relic spotter received $1，200 cash from the Penn Antiquities Club for。
future unlimited rentals。
So how do we consider this cash received for future rentals operating investing or financing？
The answer here is operating。
This is a operating cash inflow of $1，200 which makes sense because we're receiving cash。
from customers which is one of the definitions of an operating cash flow。
In transaction 16， relic spotter receives cash rental revenue on the metal detectors。
Total amount of cash is 120，100。
Is that operating investing or financing？
The answer here again is operating。
It's an operating cash inflow of $120，100 because again we're receiving cash from customers。
Either these have gotten easier or we have gotten smarter。 These all make sense。
You have clearly gotten smarter。 Probably because I'm such a great teacher。
Although I have run out of puns on the word sense。 So let's move on。
In transaction 17， relic spotter paid $38，000 cash for inventory。
Is this operating investing or financing？
The answer here is operating cash outflow of $38，000 operating because this is a core。
expenditure for running our business。
In 18， relic spotter received $35，000 cash from sales of sundries。
Is this operating investing or financing？
The answer here is operating。
Again， this is a cash collection from customer which is one of the things we use to define。
an operating activity。 Finally， transaction 20。
Cash spotter paid $82，000 cash to its employees for salaries and wages。
Is this operating investing or financing？
Again this is operating。 It's an operating cash outflow of $82，000。
Paying our employees is one of our key business activities so this would be an operating activity。
That was the last cash transaction for relic spotter because the rest of the transactions。
in the case were adjusting entries and adjusting entries never involved cash。
So we can go ahead and total everything up。
We see that the bottom line cash balance here is $78，800 which if you go back and look。
is what we end up having at the end of the year for relic spotter and we've divided that。
into a operating cash inflow of $17，400。
Then cash outflow of $310，100 and a financing cash inflow of $371，500。
So we're done。 Now all we have to do is just list these cash transactions on the cash flow statement in。
operating， investing and financing order。 Correct。
I wish that was the case because then we would be done with the week on cash flow statements。
But if you've looked at the website you can see that we have a lot of videos left to go。
And we'll pick this up next video with the discussion of the two different methods there。
are for putting together a statement of cash flows。 There's an easy method and a difficult method。
Unfortunately all companies use the difficult method so it's going to take us a lot of videos。
to understand that method which we need to know to understand real companies' financial， statements。
I'll see you next video。 See you next video。 [BLANK_AUDIO]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P67：19_3 2 1 现金流量表.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello， I'm Professor Brian Muschay。 Welcome back。 In this video。
we're going to talk about the two different methods that you need to。
know to put together a cash flow statement。 Let's get started。
There are two methods for preparing the statement of cash flows which are rather creatively。
titled the direct and indirect methods。
In the direct method， you just list the cash receipts and disbursements by the source。
or use of funds。 So where are all the places that the cash came from？
Where are all the places that you paid cash out to？
This method is always used for investing in financing activities， but is rarely used。
for operating activities。 Instead， for operating activities。
companies tend to use the indirect method。
This can only be used for operating activities and the goal is to reconcile net income with。
cash from operations by removing any non-cash items from net income and including any additional。
cash flows that were not in net income。
So we're going to see a statement that starts with net income and with cash from operations。
and shows all the differences between the two。 Almost every company uses this method for their operating activities and in fact。
if。
you use the direct method， companies also have to provide the indirect method as well。
So what this boils down to is for three buckets operating， investing and financing。
Operating can be either direct or indirect whereas investing and financing are always。
the direct method。 Why does there have to be two methods？
What's good for the goose is good for the gander？ This is just more stupid over complication。
You know， I am going to agree with you that this probably is a stupid over complication。
because really every company uses the same approach for their cash flow statement。
They do the investing and financing activities using the direct method and then they use the。
indirect method for their operating section。 Because even if they did the operating activities under the direct method。
you still have to， provide the indirect method anyway。 The direct method is a piece of cake。
You just list the cash flows based on where they're coming from or where they're going， to。
Really the one thing that you have to learn that's difficult is this indirect method for。
operating and we're going to spend much of the rest of the video and much of the rest。
of the week trying to get a handle on this indirect method for the operating section。
Let's talk about the indirect method in more detail。
The indirect method section will start with net income。
Then it's going to adjust for components of net income that are tied to non-cash items。
or to invest the activities。
What we need to do is either add back the expenses or subtract the revenues to remove。
them from net income to get the cash flow。
So for example， net income includes depreciation expense and amortization expense which are。
both non-cash expenses。 To remove those non-cash expenses so that we can get from net income to cash from operations。
we have to add them back because adding back expenses removes them。
We can also have gains or losses on sale of property plant equipment or investments。
Now there are cash flows associated with those but we want to count those cash flows in the。
investing section。 So we need to remove these gains and losses from the income statement so we're going to。
add back losses or subtract gains to remove them from net income on our way to cash from。
operations。
Then we need to adjust for components of net income tied to assets or liabilities created。
through operating activities。
These are the working capital accounts like accounts receivable， inventory， all of the， payables。
What we need to do here is add or subtract the change in the asset or liability account。
balance and we're going to use the balance sheet equation to determine whether we should。
add or subtract。
For example， accounts receivable is a non-cash asset。 If accounts receivable went up。
we would need to subtract it on the cash flow statement。
to stay in balance。 Inventory is a non-cash asset。
If it went down， we would need to add it on the cash flow statement to stay in balance。
On the other side of the equation， accounts payable is a liability。
If accounts payable went up， we would need to add it on the cash flow statement to stay。
in balance。 And if something like interest payable or way just payable went down。
we'd have a liability。
going down and we would have to subtract it on the cash flow statement。
What？ What？ Really？ What？ Really？ Can we make it crystal clear on how to do the indirect method？
Okay， okay。 We'll do an example or maybe two or maybe four or five。
Let's look at some examples of how to put together an indirect method cash flow statement。
and how it gives you the same answer as the direct method。
We're going to do this for various types of income statements with adding a little bit。
more complexity each example。
In the simplest case， we have a company that had $100 of sales which are all in cash。
Their cost of goods sold were $60， again， all in cash so that they bought $60 of inventory。
with cash and sold that all during the period。 And so they end up with net income of 40。
Under the direct method， we would have cash collections from customers of 100。
Cash payments of suppliers of 60 gives us an operating cash flow of 40。
And in this case， the operating cash flow is exactly the same as net income because everything。
the company did was in cash。 If we go to the indirect method， under the algorithm。
we always start with net income。
then we adjust for any non-cash expenses or anything related to investing activities。
which we don't have in this case。
Then we adjust for changes in working capital， but again， we don't have any in this case。
because we didn't create accounts receivable， all of our sales were cash。
We didn't end or begin the year with inventory。
And so there's no adjustments and we end up with an indirect method that gives us a cash。
flow of 40， which is the same answer as the direct method。
Now let's make this a little more complicated and bring in depreciation expense。
So we start with cash sales and cash cogs like in the prior example， but now the company。
has a $10 non-cash expense depreciation， which gives the company a net income of 30。
Under the direct method， we have cash collections from customers， cash payments to suppliers。
of course， there's no cash flow involved in the depreciation。
So we end up with the same operating cash flow of 40。
Now we need to make sure we get the same answer under the indirect method。
So for the indirect method， we start with net income， which is 30 now。
We add back the depreciation expense of 10。
It's a non-cash expense， so to remove it from net income， we add it back。
There are no changes in working capital because again， we didn't begin or end the year with。
receivables or inventory。
So there's no other adjustments and we end up with operating cash flow of 40 under the。
indirect method， which of course is the same answer under the direct method， which always。
has to be the case。
So let me get this straight。 If a company had say $10 more and depreciation expense。
it would increase cash flow by $10。 If a company had cash flow problems。
all it would have to do is take more depreciation。 That's cool。 Ah， yes。
the depreciation cash machine。 Just crank up the depreciation expense and watch that cash flow through the door。
Well， obviously it can't work like that。 And in fact。
I've heard stories about employers asking students this very question to see if。
they know anything about accounting。 So let me jump back out to the slide to show you how this works。
Okay， let's say we have another $10 of depreciation。
That means we would have $20 of depreciation expense total and we would add back 20。
But our net income would be lower because more expense means less than income。
Now I'm going to ignore taxes for now and just assume that our net income would drop。
from 30 down to 20 with the extra $10 of depreciation expense。
So we have 20 plus 20 equals 40 instead of 30 plus 10 equals 40。
It gets us to the same place。 It has to get us to the same place because depreciation is a non-cash expense。
It can't create more cash flow。
Now one thing I should note is that you can use different depreciation for tax purposes。
than you see here in the financial statements。 And changes in depreciation for tax purposes actually can save on taxes and can affect cash。
flow。 But that's a topic that we're going to deal with much later in the course。
In the next example， we're going to still have a $100 of sales。
But this time， let's assume that only $80 is received in cash。
The other $20 of sales remained on account so that we end the period with accounts receivable。
We still have $60 of COGS which is on in cash and our $10 of depreciation。
It gives us to the same net income as we saw in the last example of 30。
When we look at the direct method operating section cash flow statement， we collected。
$80 of cash from customers。 We paid $60 to our suppliers which gives us an operating cash flow of $20。
So we have less cash flow here because we collected less cash from our customers。
Now let's see if we need the same answer under the indirect method。
We start with net income and then as we saw in the prior example， add back depreciation。
expense because it's a non-cash expense。
But now we have a change in accounts receivable that we have to adjust for under that third。
step in the algorithm。
What happened is accounts receivable started the period at 0 and the period at 20 so that's。
a $20 increase in a non-cash asset which means that we have to subtract it on the cash flow。
statement。 And if we look that makes it work because we've got 30 of net income plus 10 of depreciation。
expenses 40 minus 20 for the increase in accounts receivable gets us to an operating cash flow。
of 20 which is the same answer that we got under the direct method。
And that by me again we sell $20 of goods and yet that reduces our cash flow。
Isn't that like cutting off a nose despite the face？
Actually I think throwing the baby out with the bath water would be a better analogy here。
But anyway let's think through the intuition behind the indirect method。
We want to start with net income， make adjustments to get to cash from operations。
Net income includes $100 of sales。
All of those sales are legitimate， they meet the revenue recognition criteria。
But $20 of those sales were never collected in cash。
What we need to do is start with net income which includes the $100 of sales and remove。
the non-cash sales。 Fortunately the increase in accounts receivable keeps track of the non-cash sales because anytime。
we make a sale on credit we have to increase accounts receivable。
So if we start with net income which includes the $100 of sales， subtract the increase。
in accounts receivable to take out the $20 of non-cash sales。
We're left with $80 of cash sales in cash from operations making the nose， the face。
the baby and the bath water all safe in this case。
One more example。 We're going to start with sales of $100 again with $80 in cash。
$20 on account just。
like before。
Now we're going to make the inventory part a lot more complicated。
So we'll keep $60 of cost it gets sold but in this case we actually bought $75 of inventory。
So we bought $15 more of inventory than we sold and we only paid $50 in cash which means。
that $25 of that inventory was acquired on account so you have accounts payable of $25。
Then we subtract off the depreciation and we end up with a net income of $30。
Under the direct method we collect $80 of cash from customers， we only paid $50 cash。
to our suppliers so we don't use the cogs amount or how much inventory we bought， we。
use the actual cash we paid which was $50 and we end up with an operating cash flow under。
the direct method of $30。
Under the indirect method we start with net income， we add back depreciation expense so。
we've seen those two steps before。 We've also seen the subtraction of the increase in accounts receivable to take into account。
that not all the sales were made in cash。
Now we have to account for that mess with inventory。
So what happened was our inventory started the year at zero and ended the year at 15。
It went up by 15 because we purchased 75 inventory but only sold 60。
If a non-cash asset goes up we subtract it on the cash flow statement so we subtract the。
increase in inventory。 For accounts payable they started the year at zero and of the year at 25 so this liability。
accounts payable goes up by 25 that's on the other side of the equal sign so cash has to。
go up by 25 to make this balance so we can see on the indirect method cash flow statement。
we have increase in accounts payable of 25 gets added back。
When we add everything up we get the same operating cash flows under the direct method。
So quick word on the intuition here for inventory in accounts payable。
If your inventory goes up during the year it means that you're buying more inventory。
than you needed for your level of sales which means you're spending extra cash on inventory。
which is why it's a subtraction on the cash flow statement。
For accounts payable if your accounts payable went up that means that you got stuff without。
paying your supplier not paying your supplier is a source of cash that's an extra $25 of。
cash that you would not have had if you had paid off your suppliers amount and so we add。
that to recognize that it's a source of cash。 We're going to go through a lot more examples of like this in remaining videos to help you。
get down this intuition。 Okay this is quite complicated。
Well I showed you a slide earlier in the video with a simple algorithm for doing the indirect。
method and you all went what really sorry to be a little pea-bish there I guess that's。
what the cash flow statement will do to us。 I understand that it is hard to get your head around how this indirect method works。
when you see it for the first time。 So we're going to do in the next video is go back to the relic spotter case and step by。
step work through how to put together an indirect method cash flow statement for relic spotter。
and then you see many more examples later in the week and hopefully as you get the mechanics。
down we'll be able to talk more about the intuition for what this indirect method statement。
is telling us which is the real thing that we want to get out of this effort of learning。
how to put together the indirect method cash flow statement。 Anyway I'll see you next video。
See you next video。 [BLANK_AUDIO]。
沃顿商学院《商务基础》｜Business Foundations Specialization｜（中英字幕） - P68：20_3 2 2 文物寻宝案例部分 6.zh_en - GPT中英字幕课程资源 - BV1R34y1c74c
Hello and Professor Brian Bichay， welcome back。 In this video we're finally going to finish the Relic Spotter case by putting together。
its statement of cash flows using the direct and indirect methods。 Let's get started。
Last time we looked at the Relic Spotter case， we put all of the cash transactions into operating。
investing and financing buckets。 So now we're going to go ahead and use these classifications to put together the cash。
flow statement。 To do the indirect method， we're going to need to pull some information off the income。
statement。 So here's a reminder of what the income statement looked like for Relic Spotter。
And we're going to need to use the balance sheet。 So here's what the balance sheet looked like for Relic Spotter。
What did all of the zeros come from？ I don't remember all of those zeros when we put together the balance sheet。
Good memory。 In fact， when we put together the Relic Spotter balance sheet。
we didn't have all these。
zeros in there because we only put together the ending balance sheet。
But when we do a cash flow statement， we need to change in the balances， the difference。
between the beginning balance and the ending balance。
There was no beginning balance in any of these accounts because Relic Spotters is a startup。
company。
So I went ahead and created a beginning balance sheet of all zeros to make it clear that we're。
taking the change in the balances for the statement of cash flows， not just the ending。
balance。
First I'm going to do the direct method for investing and financing activities。
Once we get that out of the way， then we'll look at operating activities under both the。
direct and indirect method。 For the investing activities。
we need to pull out the column of cash flows that we classified。
as investing and then just list them in the cash flow from investing activities section。
So we have purchase of land for 103，000， purchase of buildings， 85，000。
We purchase metal detectors of $120，000 cash and purchase the software which is a long-term。
asset $2，100。
At them all up， we get net cash outflow from investing activities of $310，100。
This section will go on the final cash flow statement。
How do you determine which line items to report on the statement？ Oftentimes。
don't companies simply report a line called capital expenditures？
There are generally no specific rules that govern how much or how little detail you break。
things into on the statement of cash flows。 It's the manager's choice。
but usually the manager makes the choice based on what investors， and analysts want to see。
Because of investors and analysts are looking for peace information that's not there， they'll。
just ask the company about it during a conference call or some other communication。
So what you're seeing on the cash flow statement is a joint agreement between managers and the。
users of the financial statement as to how much detail they want to see in these various。
line items about the company。 Next we do the direct method for the financing activities。
So here is the column of cash transactions that we classify as financing。
Now we just need to list them。 So we pay dividends of $2，500。
proceeds of sale of stock that was $250，000 coming in。
and proceeds from the mortgage payable was $124，000 coming in。
That gives us a net cash inflow from financing activities of $371，500， and this section will。
go on the final cash flow statement。
Now even though it's somewhat theoretical because companies never really report these。
we're going to look at the operating activities under the direct method。
So let me pull in the operating cash flow transactions， and under the direct method all。
we have to do is list them。 So first I'm going to take all the cash we collected from customers。
We received cash on the rental prepayment from the pen and tick-wities club。
The revenues that came in cash from metal detector rentals， and then the $35，000 of cash。
from the sundry sales， you add that together and we have cash collected from customers totaling。
$156，300。
Wait， we haven't recognized revenue yet on the rental prepayment amount。
How can we justify putting that on the cash flow statement？ Well。
we can justify putting it on the cash flow statement because RelicsBotter actually， received cash。
But you raised a good point in that a lot of the examples we've seen so far， companies。
are recording revenue before they receive the cash， and so we have a change in accounts， receivable。
But you could have a company receive the cash before they earn the revenue。
The cash flow statement is just giving you cash in and cash out during the period， and。
that's going to be different from revenue， but it could be different in either direction。
either you might get the cash first， or you might get the cash later compared to when。
you book the revenue。 Continuing on， we paid $2，000 cash to our supplier。
and we bought an additional $38，000。
of inventory with cash。 Add that up， cash paid to suppliers is $40，000。
Cash paid to employees for salaries and wages was $82，000。
Cash paid for short-term loans was $5，000， and then I'll combine legal fees and advertising。
into cash paid for miscellaneous expenses of $11，900。
Again whether you list those separately or combine them depends on what your financial。
statement users want to see in terms of the level of detail。
We add all this up and we get net cash from operations of $17，400， which is what we had。
in the operating bucket to begin with。 Okay。 This direct method is simple， clear， straightforward。
and informative。 But you said the companies rarely use it。 So？ So。
why do we have to learn the indirect method？ Why do companies prefer the indirect method？
And why does the FASB require it even when the direct method is chosen？ Um， yes。
that is what I was going to ask。 Let's hear your answer。
I'm glad you asked that question here because this is the best place for me to show you。
why the direct method is not that useful for the operating section of the cash flow statement。
Let me jump out to the slide to show you what I mean。
So RelicsBotters cash collected from customers was $156，300。
Is that good or bad？ RelicsBotters cash paid to suppliers was $40，000。
Is that good or bad？ Well， you can't tell without some kind of benchmark。
You could look at prior your numbers to see if there's a trend， but we really want to。
know is what was the level of activity surrounding these cash collections during the year。
For example， if RelicsBotter had $157，000 of revenue and collected $156，300 in cash， then。
the cash flow makes sense。
But if RelicsBotter had $500，000 in revenue， but only collected $156，300， then there may。
be a problem。 Or let's say that RelicsBotter sold $40，000 in inventory， paid $40。
000 of their suppliers。
Again， the cash flow makes sense。
But what if RelicsBotter only sold $10，000 of inventory？ Then the question is。
why did they spend an extra $30，000 in cash to acquire inventory。
they didn't sell？
What the indirect method is going to do is start with net income as a benchmark for the。
expected level of activity or expected level of cash flows during the period and then highlight。
any discrepancies from that level。 This is the kind of thing we'll talk about when we do an analysis of an indirect cash。
flow statement after we finally put one together later in the video。
Now we're going to do the indirect method， which will be what will show on the final cash。
flow statement for RelicsBotter。
We're going to go step by step following the algorithm that I did before， starting with。
net income。 So I pulled up the income statement at the bottom line。
We can see net income was $2，370。 So on our indirect method cash flow statement。
we started the top with net income of $23。70。
First I already have the answer at the bottom， net cash from operations of $17，400 because。
whatever we do in this section， we have to get the same answer that we got under the。
direct method。 Okay， so far so good。
Next step in our algorithm was to adjust your components of net income tied to non-cash。
items or investing activities。 We could ignore investing activities for RelicsBotter because they didn't have any gains or losses。
on sale of PPE or investments。
So it really involves adding back the depreciation and amortization。
Here is the income statement again。
We had metal detector depreciation of $3，000， software amortization expense of $3。50， and。
building depreciation expense of $1，500。
I'm going to combine those into one line item called depreciation and amortization of $31，850。
And we're going to add that back to remove that non-cash expense from net income。
Do we always combine all of the depreciation and amortization into one line？ Again。
this is a choice by managers about how much or how little detail they want to。
provide on their statements。 One thing I will say here is that generally the only place you can find depreciation and。
amortization expense in the statements is on the statement of cash flows。 Yes。
it's part of the income statement， but it's often combined with other items and not。
broken out separately， but you'll always be able to find it broken out separately in。
the operating section of the statement of cash flows。
The last step in our algorithm is to go through all the asset and liability accounts related。
to operating activities， in other words， the working capital accounts， and add or subtract。
the change in the balance based on the balance sheet equation。
So start with accounts receivable。
Cash receivable went from 0 to 4200， so it went up by 4200 during the year。
That's a non-cash asset going up， which means we need to subtract it on the cash flow statement。
to stay in balance。
Notes receivable went from 0 to 5，000。 Non-cash asset going up。
To stay in balance， we need to subtract that on the cash flow statement， so we subtract change。
in notes receivable to 5，000。
Cash receivable went from 0 to 250， non-cash asset going up， so we subtract it on the cash。
flow statement。
Inventory went from 0 to 12，000， non-cash asset going up， so we subtract it on the cash flow。
statement。 Prepaid advertising went from 0 to 4，000， and again， non-cash asset going up。
we subtract。
that on the cash flow statement。
I think I understand assets are always subtracted when the indirect method is used。 No， no， no， no。
no。 That's just a function of looking at a startup company， which of course had a balance of。
zero in all the assets in the beginning of the year， and so all the assets went up。
In a future video， we'll look at examples where companies do add assets to their statement。
of cash flows because they've had assets go down during the year。
If we look at the rest of the assets out of the balance sheet， we have land， buildings。
metal detectors， software， we don't do anything with those in the operating section because。
we've already taken care of those in the investing activities。
So we move on to the liability side of the balance sheet。
We have accounts payable went from 0 to 2，000。
That's an increase in a liability of 2，000。 Note we're on the other side of the equal sign with the liability。
so liability going。
up means that we need to add it to the cash flow statement。
Interest payable went from 0 to 4900， so that's an increase in a liability of 4900， which。
we need to add to the cash flow statement to keep the balance sheet equation in balance。
Income taxes payable went from 0 to 630。 Again an increase in a liability gets added to the cash flow statement。
And unearned revenue went from 0 to 1100。
That's an increase in liability that gets added to the cash flow statement。
And I think I am not wrong to assume that it is not necessarily the case that liabilities。
are always added under the indirect method。 Wow， there were a lot of negatives that are not really sure what the question was。
But you should not assume that liabilities are always added on the cash flow statement。 Again。
because we were looking at a startup， all the liabilities went up in value and so， we added them。
We will see examples where liabilities go down during the year and we end up subtracting。
them on the cash flow statement。 Going back to the balance sheet。
the next accounts we would have would be mortgage payable。
common stock， additional paid in capital。
But we are ready to care of those with the cash flow from financing activities and retained。
earnings that's just net income and dividends which we've also taken care of。
So looks like we're done， which is a good thing because we're out of space on the indirect。
method cash flow statement here on the right。 And if you add everything up。
you'll find that we get the same answer， 17，400 that we。
got under the direct method。
So putting it all together， this is what Relics Bottoms cash flow statement is going to look。
like。 Cash flows from operating activities are going to be under the indirect method。
And then we'll have cash flow from investing and financing activity under the direct method。
In terms of analysis， what this statement tells us is that this company is still in the early。
growth stage of its life cycle。
We do have positive cash from operations， 17，400。
But that's nowhere near enough to cover all the cash outflow for investing activities。
So Relics Bottoms had to go out and raise a lot of cash through financing activities。
both through stock and mortgage payable。
So again， just like we did in prior videos， we can look at these three buckets operating。
investing， and financing to get a sense for where a company is in its growth stage and。
life cycle。
Now I want to focus just on the cash flow from operating activities section so we can。
talk about what we learned from this indirect method presentation。
First thing we learned is it gives us the two different pictures of the company's performance。
during the year。 So we see Relics Bottoms net income， which answers the question。
did Relics Bottoms price。
their rentals and sales high enough to cover all the costs of running the business and。
thus post a profit。 And we can see they did。 They had a profit of 2370。
Then at the bottom we see net cash from operations， which answers the question， did Relics Bottoms。
have more cash coming in than cash going out in activities related to running the business？
And here we see that that was the case also。 Between those two pictures of the business。
we see all the discrepancies， all the reason。
why we got different answers。 And the biggest discrepancy is the depreciation and amortization。
And that makes sense because net income includes an expense or a charge for using up。
these fixed assets using the buildings and metal detector and softwares， whereas there。
is no cash implications of doing that and so it doesn't affect cash from operations。
So anytime you look at companies that are very capital intensity， if they have a lot of。
long term assets， you'll see this difference between net income and cash from operations。
is primarily driven by this depreciation and amortization。
Then we have all of the changes in working capital that have created discrepancies between。
net income and cash flow。 And from an analysis point of view。
I think these are the most interesting and important。
lines to focus on in the cash flow statement。
Because what these lines are telling you is that some management activity is creating。
a wedge between cash flows and revenue and expense recognition。
What you want to do is focus on the really big numbers and try to understand what's going， on。
So for instance the biggest number is the change in inventory is a negative 12，000。
What that represents is that relic spotter purchased $12，000 more inventory and cash。
than they needed for their level of sales which were recognized in net income。
What you want to do now is dig in and try to find out what caused that。
So did relic spotter management buy a bunch of inventory that they couldn't sell because。
nobody wanted it then this would be bad news。
Or were they getting some kind of volume discounts and so they were buying excess inventory。
in advance of future sales which would be good news。
I mean the cash flow statement is not going to tell you which one it is but it's going。
to tell you you need to dig into these further。 As another example a big discrepancy that you often see is changes in accounts receivable。
which in case of relic spotter was negative 4，200。
This indicates that they booked more sales than they collected cash。
This could be good news if their sales are growing dramatically and they just haven't。
had a chance to collect them yet。 Or it could be bad news if their sales on account to customers are not getting collected。
because the customers are not paying their financial difficulty。
Again we don't know which scenario is going on just by looking at the cash flow statement。
What it does is it highlights we need to dig into these further。
So you want to look for the big numbers and these changes in working capital and these。
are going to be a starting point for further information gathering to try to figure out。
what's going on at the company。
So that was our first trip through putting together an indirect method cash flow statement。
using the balance sheet and the income statement。 Not clear yet。 Don't worry。
There are more examples coming in the future videos。 I'll see you then。 See you next video。 Bye。
[BLANK_AUDIO]。
