Statement of Cash Flows - Coursework Example

Finance and Accounting it is written on order instructions what you need to do exactly Contents Contents 2 Task 3 Task 2:- 5 Task 3:- 5 Task 4:- 7 References 8 Appendices 9 Task 1:- The net profit and the cash generated from operating activities of a company might not be equal for a same period of time because cash flow and net profit are different from each other. Cash flow can be defined as the money which comes in and goes out due to different financial, investment operating activities. On the other side, net profit is the amount remained from sales revenue after the deductions of all expenses of the firm. We follow the accrual method of accounting and under this method; net income is calculated by subtracting all the expenditures that the firm has incurred from the total sales revenue. For an example, if an organization earns credit sales in the month of December which will be received in the month of January then the revenue will increase for December but company’s net cash flow will now increase in December. Thus expenses and income occurring in one accounting period and received and payments made in another accounting period make the change between net profit and cash generated from operating activities. Cash Flow Statement for the year 2013 NET INCOME 124 DEPRECIATION & AMORTIZATION, TOTAL 1,415.00 (Gain) Loss From Sale Of Asset 245 (Gain) Loss On Sale Of Investment -- Asset Write-down & Restructuring Costs 1,124.00 (Income) Loss On Equity Investments -54 Stock-Based Compensation 53 Net Cash From Discontinued Operations -884 Other Operating Activities 1,068.00 CASH FROM OPERATIONS 2,837.00 Capital Expenditure -2,619.00 Sale Of Property, Plant, And Equipment 1,351.00 Cash Acquisitions -72 CASH FROM INVESTING -278 Long-Term Debt Issued 1,820.00 TOTAL DEBT ISSUED 1,820.00 Long Term Debt Repaid -3,054.00 TOTAL DEBT REPAID -3,054.00 Issuance Of Common Stock 57 Repurchase Of Common Stock -- Common Dividends Paid -1,184.00 TOTAL DIVIDEND PAID -1,184.00 Other Financing Activities -4 CASH FROM FINANCING -2,365.00 Foreign Exchange Rate Adjustments 26 Miscellaneous Cash Flow Adjustments -19 NET CHANGE IN CASH 201 Net Profit is $124 million. From the above hypothetical cash flow we can see that the cash from operation $2837 million and net profit is $124 million. There is a difference between the cash generated from operating activities and net profit. It is because cash from operations includes capital expenditure, income from sales of plants, equipments and property and cash acquisitions but when we compute net profits then we deduct all the expenditures from the sales revenue. Thus the net profit and cash from operations may not always be equal. A company can earn net profit but it may earn negative cash from operations which indicates the company is actually has no cash in its hand. Task 2:- Cash flow under operating activities can be done by using either direct method or indirect method. These methods are different from each other. In the direct method information about main elements of gross cash payments and gross cash receipts is shown as separately and the information about the receipts and payments can be gathered either from records of accounts or by adjusting cost of sales, sales and other elements in the income statement. But on the other side in case of indirect method, profit and loss is adjusted on elements which are related to financing and investing activities and effects of noncash transactions like changes in receivables, payables, inventory, provisions, depreciation, amortisation, gains and losses in foreign currency and differed tax liabilities are also adjusted on the items (Thornton, 2012, p.15). Task 3:- A. The net cash flow from operating activities of FEDEX in the year 2011 is $4041 million and in 2012 it is $4835 million. Thus the cash flow from operating has been increased over the years. It has increased due to increment in net income and earnings from other operating activities. The net cash flow from operating activities of DHL for the year 2012 is -203 million euro and in 2011 it was 2371 million euro. There is significant decrease in the operating cash flow due negative earnings from operating activities and increment in depreciation amount. B. Working Capital of FEDEX has improved over the years and it indicates that the management is efficient enough to manage the working capital of the company which is used for day to day activities. Working capital of DHL is negative for both the years 2011 and 2012. In 2011, working capital is -1439 million euro and in 2012 it is -336 million euro. It indicates that the company has no cash for its day to day activities. C. Cash flow from financing activities of FEDEX is negative for the years due to repayment of previous long term debts. It has also repurchased some common stock in the year 2012. Cash flow from financing activities of DHL is 1199 million euro in the year 2012 and it is negative in the year 2011. Thus it indicates that the cash flow from financing activities has improved in 2012. Thus it can be said that DHL will face lower risk in its long term funding policy because in recent year it has positive cash flow from financing activity as compared to the company FEDEX. D. Cash flow from investing activities of FEDEX in 2011 -$3419 million and in 2012 it is -$4049 million. Cash flow from investing activities of DHL in 2011 is -1697 million euro and in 2012 it is -1129 million euro. Although the cash flow for both the company is negative in recent year but the company DHL has more prudent investing policy than FEDEX as it has less negative cash flow from investment activities than FEDEX. Task 4:- From the above study we have seen the cash flows of the two companies for two consecutive periods. The cash flow from operating activities is better in case of FEDEX as compared to DHL and the company has also shown efficiency in managing working capital over the period. But in case long term funding policy and prudent investment policy, DHL is better than FEDEX as the company has better cash from financing and investment activities as compared to FEDEX. Thus it can be said that DHL is better company than FEDEX in managing cash flow from financing and investment activities while FEDEX has better cash from operations and working capital which is necessary for day to day activities. References Bloomberg., 2014. Fedex Corp (FDX:New York). [Online]. Available at: http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=FDX&dataset=balanceSheet&period=A¤cy=native. [Accessed on February 14, 2014]. Yahoo Finance., 2014. Deutsche Post AG (DPW.DE). [Online]. Available at: http://finance.yahoo.com/q/bs?s=DPW.DE+Balance+Sheet&annual. [Accessed on February 14, 2014]. Thornton, G., 2012. IAS 7: Statement ofCashFlows. [Pdf]. Available at: http://www.grantthornton.se/Global/Dokument/Tjanster/Radgivning/IFRS/2012/IAS%207%20Statement%20of%20Cash%20Flows.pdf. [Accessed on February 14, 2014]. Appendices Cash Flow Statement of Fedex Currency in 31-May 31-May Millions of US Dollars 2011 2012 NET INCOME 1,452.00 2,032.00 Depreciation & Amortization 1,941.00 2,095.00 Amortization Of Goodwill And Intangible Assets 32 18 DEPRECIATION & AMORTIZATION, TOTAL 1,973.00 2,113.00 Asset Write-down & Restructuring Costs 29 134 Other Operating Activities 669 1,126.00 Provision & Write-Off Of Bad Debts 152 160 Change In Accounts Receivable -400 -254 Change In Accounts Payable 370 144 Change In Other Working Capital -302 -725 CASH FROM OPERATIONS 4,041.00 4,835.00 Capital Expenditure -3,434.00 -4,007.00 Sale Of Property, Plant, And Equipment 111 74 Cash Acquisitions -96 -116 CASH FROM INVESTING -3,419.00 -4,049.00 Long-Term Debt Issued -- -- TOTAL DEBT ISSUED -- -- Long Term Debt Repaid -262 -29 TOTAL DEBT REPAID -262 -29 Issuance Of Common Stock 108 128 Repurchase Of Common Stock -- -197 Common Dividends Paid -151 -164 TOTAL DIVIDEND PAID -151 -164 Other Financing Activities 18 18 CASH FROM FINANCING -287 -244 Foreign Exchange Rate Adjustments 41 -27 NET CHANGE IN CASH 376 515 Particulars 2011 2012 Working Capital 3,403.00 3,682.00 Cash Flow Statement of DHL Currency in Euro (Numbers in Thousands 2012 2011 Net Income 1,658,000   1,163,000   Operating Activities, Cash Flows Provided By or Used In Depreciation 1,214,000   1,127,000   Adjustments To Net Income -   -   Changes In Accounts Receivables -221,000 -406,000 Changes In Liabilities -   -   Changes In Inventories -51,000 -37,000 Changes In Other Operating Activities -150,000 580,000   Total Cash Flow From Operating Activities -203,000 2,371,000   Investing Activities, Cash Flows Provided By or Used In Capital Expenditures -1,639,000 -1,716,000 Investments -   -   Other Cash flows from Investing Activities -   -   Total Cash Flows From Investing Activities -1,697,000 -1,129,000 Financing Activities, Cash Flows Provided By or Used In Dividends Paid -   -   Sale Purchase of Stock -   -   Net Borrowings -   -   Other Cash Flows from Financing Activities -265,000 402,000   Total Cash Flows From Financing Activities 1,199,000   -1,547,000 Effect Of Exchange Rate Changes -15,000 13,000   Change In Cash and Cash Equivalents -723,000 -292,000 Particulars 2011 2012 Working Capital -1,439,000.00 -336,000.00 Read More