Find The Statement Of Cash Flow For A Firm Of Your Choice

Find The Statement Of Cash Flow For A Firm Of Your Choosing

Find the statement of cash flow for a firm of your choosing and report the cash flow ratios. Please report and discuss 3 years of ratios for the three ratios related to debt and dividends but only the current year’s cash flows per share. Show numerators and denominators for all ratios and then discuss their economic meaning. It is possible that your firm does not pay dividends (you will see dividends in the financing section of the cash flow statement). The cash flow per share ratio is particularly challenging since most of the numbers in the statements are in thousands or millions (look at the top of the statement for a note) while the number of shares outstanding only for the current year (in yahoo.finance, under your firm’s page, look in “Key Statistics” and you will find the number of shares in the right-hand column about halfway down the page). You only have to report ONE YEAR on the cash flow per share. Please do not report on Nike, as that will be the firm posted as an example. Again, please do not duplicate firms by including the name of your chosen firm in the title to your post. Also, please respond to questions/comments from your instructor regarding your post.

Paper For Above instruction

The task is to analyze a firm's statement of cash flows by calculating and discussing key cash flow ratios over a three-year period, focusing on measures related to debt and dividends, with particular emphasis on the current year's cash flow per share. This analysis provides insights into the firm’s financial health and liquidity position, especially in terms of how it manages debt obligations and dividend payments, which are critical indicators for investors and creditors.

To begin with, selecting an appropriate firm involves sourcing its latest three-year statements of cash flows, available in its annual financial reports or credible financial databases such as Yahoo Finance, EDGAR, or company websites. It is essential to focus on the cash flow statement rather than the income or balance sheet statements, as cash flows reflect the actual liquidity movements within a firm. Notably, most cash flow figures are often reported in thousands or millions. Therefore, adjusting these figures by the scale factor noted at the top of the statement ensures the ratios are expressed accurately in dollar terms.

The first step involves calculating the three ratios related to debt and dividends for each of the three years. These ratios typically include the debt coverage ratio, the dividend payout ratio, and the free cash flow to equity or debt. The debt coverage ratio can be derived from cash flows used to service debt divided by total debt or debt obligations. The dividend payout ratio considers dividends paid relative to net income or cash flow from operations, revealing the firm's propensity to distribute cash to shareholders. The third ratio, involving debt or dividends, could be the cash flow to debt ratio or a similar liquidity measure indicating the firm’s capacity to meet its financial obligations with available cash flows.

Once these ratios are calculated, attention shifts to the current year's cash flows per share. This measure involves dividing the cash flow attributable to common shareholders by the weighted average number of shares outstanding during the fiscal year. The numerator, cash flow per share, is usually sourced from the statement of cash flows, while the denominator is obtained from the 'Key Statistics' section of financial websites like Yahoo Finance, ensuring the number reflects only the current year’s shares outstanding.

Discussing the economic meaning of these ratios enhances understanding of the firm's financial stability. For example, a high debt coverage ratio indicates sufficient cash flows to meet debt payments, signaling low default risk. Conversely, a declining dividend payout ratio might suggest the firm is conserving cash for growth or debt repayment, which can be viewed positively from a financial prudence perspective but negatively if investors rely on dividends. Cash flow per share indicates the actual cash available to each shareholder, providing a clearer picture than earnings per share, especially for firms with significant non-cash expenses or earnings management.

Economic analysis involves evaluating whether the ratios demonstrate sustainable cash flows, manageable debt levels, and prudent dividend policies. For example, a firm with consistently high cash flow per share and robust debt coverage ratios is better positioned to withstand financial shocks, while low ratios or diminishing trends may signal liquidity stress or potential insolvency risks.

In conclusion, this exercise offers valuable insights into a firm's operational efficiency and financial health through cash flow analysis. By carefully selecting a firm, accurately computing the ratios, and interpreting their economic significance, stakeholders can make informed decisions regarding the firm’s financial stability and future prospects. This analysis underscores the importance of cash flows in assessing real financial strength, beyond what is reported in net income.

References

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