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Cash Flow Statement Analyis: This week we turn to the last of the major financial statements – the Cash Flow Statement.

Cash Flow Statement Analyis: This week we turn to the last of the major financial statements – the Cash Flow Statement.

Week 4 DiscussionCOLLAPSE

Cash Flow Statement Analyis

This week we turn to the last of the major financial statements – the Cash Flow Statement.

  1. Locate and post a screen shot of an actual Cash Flow Statement from the latest fiscal year for one of the following companies:
    • Medtronics
    • ExxonMobil
    • Your own Company (or any company you choose)
  2. Pick a Cash Flow Statement line item or ratio from the following list:
    Line ItemRatio

    • Net Change in Cash
    • Cash Flow from Operations
    • Cash Flow from Investing
    • Cash Flow from Financing
    • Capital Expenditures
    • Dividends Paid
    • Proceeds from Long Term Debt
    • Cash Flow Return on Assets
    • Dividend Payout Ratio
    • Cap Ex to Depreciation Ratio
    • Free Cash Flow
  3. What does this line item or ratio measure and why is it important for Management to understand this number
  4. From the Cash Flow Statement, identify the past 4 years of amounts for your line item or ratio. Share this data with the class using a data table or chart.
  5. Answer the following questions:
    • What is the trend for this line item or ratio?
    • Has the line item or ratio amount increased or decreased?
    • Is this a “good” or a “bad” thing for this company?
    • What might management do to improve this line item or ratio?

Post your initial response by Wednesday, midnight of your time zone, and reply to at least 2 of your classmates’ initial posts by Sunday, midnight of your time zone.​

First person to respond to is Gabriela

Greetings Prof. Armstrong & Classmates,

Medtronic – Ratio: Free Cash Flow (FCF)

I picked the Free Cash Flow ratio as it is new to my knowledge, and in comparison, with the net cash flow, the free cash flow is more specific, which shows how much cash a company generates through its operating activities, after taking into account operating expenses and capital expenditures. Investors use this metric to analyze the financial health of a company. The higher the free cash flow is, the healthier a company is. In contrast, an insufficient FCF can force companies to increase their debt levels and is a sign that companies cannot sustain earnings growth. (Investopedia, 1). It is the metric to analyze the investment that will generate a good return on capital.

In millions

2021

2020

2019

2018

Net Cash from Operating Activities

6,240

7,234

7,007

4,684

Additions to PPE

(1,355)

(1,213)

(1,134)

(1,068)

Free Cash Flow

4,885

6,021

5,873

3,616

As a trend Medtronic FCF has a steady growth compared with the industry, for example, Merck which is considered one of the leading players in the healthcare industry (2):

Merck

09-2021

2020

2019

2018

Free Cash Flow

4,787

5,569

9,967

8,307

These large amounts of FCF can be used to pay dividends, boost investments in operations or reduce debt, which Medtronic can dispose of. The level of revenues is relatively steady; however, the debt levels went up by 20% in 2021; the FCF accumulated could be used to pay this debt partially. As well, the levels of inventory and accounts receivables are high, and it costs cash, so these could generate the cash that could increase the FCF levels.

Thank you. Gabriela

References:

  1. Investopedia. Retrieved from: https://www.investopedia.com
  2. Merck. Retrieved from: https://www.macrotrends.net/stocks/charts/MRK/merck/free-cash-flow

2nd response to is Phi

 

Greetings Prof. Armstrong & Classmates,

Medtronic – Ratio: Free Cash Flow (FCF)

I picked the Free Cash Flow ratio as it is new to my knowledge, and in comparison, with the net cash flow, the free cash flow is more specific, which shows how much cash a company generates through its operating activities, after taking into account operating expenses and capital expenditures. Investors use this metric to analyze the financial health of a company. The higher the free cash flow is, the healthier a company is. In contrast, an insufficient FCF can force companies to increase their debt levels and is a sign that companies cannot sustain earnings growth. (Investopedia, 1). It is the metric to analyze the investment that will generate a good return on capital.

In millions

2021

2020

2019

2018

Net Cash from Operating Activities

6,240

7,234

7,007

4,684

Additions to PPE

(1,355)

(1,213)

(1,134)

(1,068)

Free Cash Flow

4,885

6,021

5,873

3,616

As a trend Medtronic FCF has a steady growth compared with the industry, for example, Merck which is considered one of the leading players in the healthcare industry (2):

Merck

09-2021

2020

2019

2018

Free Cash Flow

4,787

5,569

9,967

8,307

These large amounts of FCF can be used to pay dividends, boost investments in operations or reduce debt, which Medtronic can dispose of. The level of revenues is relatively steady; however, the debt levels went up by 20% in 2021; the FCF accumulated could be used to pay this debt partially. As well, the levels of inventory and accounts receivables are high, and it costs cash, so these could generate the cash that could increase the FCF levels.

Thank you. Gabriela

References:

  1. Investopedia. Retrieved from: https://www.investopedia.com
  2. Merck. Retrieved from: https://www.macrotrends.net/stocks/charts/MRK/merck/free-cash-flow

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