Showing papers on "Cash flow statement published in 1974"

Financial Statement Analysis

Abstract: Part One Introduction and Overview1. Overview of Financial Statement Analysis2. Financial Reporting and AnalysisPart Two Accounting Analysis3. Analyzing Financing Activities4. Analyzing Investing Activities5. Analyzing Investing Activities: Intercorporate Investments6. Analyzing Operating ActivitiesPart Three Financial Analysis7. Cash Flow Analysis8. Return on Invested Capital and Profitability Analysis9. Prospective analysis10. Credit Analysis11. Equity Analysis and ValuationComprehensive Case: Applying Financial Statement AnalysisAppendix A. Financial StatementsDell Inc.Campbell SoupInterest TablesReferencesIndexQuick Review

On the Cash Balance Problem

Abstract: The problem of determining the optimal level of a firm's cash balance has been studied by many researchers. Their analyses differ with respect to the assumptions made about both the cost structure faced by the firm and the nature of the flow of funds to the firm. Because of the different methodologies employed by these authors, a proof of the form of the optimum policy only exists for some assumptions about costs and cash flow conditions. Under other conditions, authors have simply assumed the form of the policy and solved for the parameters of that policy. This paper uses a general dynamic programming formulation of the cash balance problem to derive the form of the optimal cash balance problem under different assumptions about transaction costs and the demand for funds. It consists of a review, synthesis, generalization, and in many cases gives a more rigorous derivation of results. Also the nature of the cash balance problem is expanded in the interest of realism, to allow for access to short-term sources of funds.

A note on the uselessness of transaction demand models

Abstract: CASE M. SPRENKLE (1969), in a refreshing departure from the elasticitygrubbing that constitutes most empirical work on money demand, examined predicted vs. reported levels of cash holdings in firms, using the equation derived by Baumol (1952) and Tobin (1956) as his predictor. Sprenkle concluded that compensating balance requirements, and not asset management decisions taken to cover transaction needs, are the most important data in explaining the amount of cash held by business firms. In this note, I argue that his results do not support his claim of showing "the uselessness of transaction demand models." Rather, they stem from (a) the inadequacy of the Baumol-Tobin (B-T) model as a representation of cash flows, and (b) the irrelevance of cash balance data contained in financial reports to empirical research on money holdings. I also show that Sprenkle's heavy reliance on the importance of compensating balances is misplaced. II. TRANSACTIONS DEMAND MODELS AS PREDICTORS He sets out to show "how little . . . [the B-T model] . . . really explains, how subject to error the results of the theory are, and how fruitless more sophisticated versions of the theory are apt to be." He shows that the model does a poor job of predicting the level of cash holdings in large business firms, and concludes with the obiter dictum that compensating balances determine the levels of business cash holdings. The Baumol-Tobin model depicts the cash flow as a sequence of k receipts per year, each one being followed by a steady stream of payments which just exhaust it. That representation is a priori unreasonable. A large part of any firm's cash transactions are with other firms, so few firms, if any, can show the cash flow pattern assumed in the B-T model. Also, direct evidence from a few firms shows a random mixture of odd-sized daily net receipts and payments. In those observed cases, the running mean of daily cash activity rapidly converges to a value close to zero; the daily flows have no significant underlying periodicity, and certainly no trend or "drift."' The B-T model, by contrast, assumes that the cash account level is extremely periodic, if it is left unadjusted. * NSF research support is gratefully acknowledged. This note is a spin-off from a longer paper that has been presented before several helpful audiences. Thanks are owed to R. Clower, M. Darby, J. Kindahl, A. Leijonhufvud, L. Meyer, R. Schmalensee, C. Sprenkle, and Jack M. Guttentag, for useful comments. The usual disclaimer on sources of error applies. ** Professor of Economics, University of California, San Diego. 1. One day is the ideal interval at which to observe cash flows, since returns on short-term securities can be realized on a daily basis, and banks monitor the demand deposit accounts of their customers once per day.

The Meaning Of Company Accounts

Abstract: Part 1 Background and structure: development of accounting the accounting task fundamental accounting concepts "a true and fair view" the accounting model profit and loss account and balance sheet profit and loss classification balance sheet classification cash flow statement disclosure in annual reports modern requirements auditors' report summary problems Part 2 Analyzing performance: introduction overview return on investment pyramid of ratios ratio calculation performance ratios (profitability) performance ratios (asset turnover) standard for analysis comparing different companies' results the need for caution different viewpoints summary problems Part 3 Financial and stock market ratios: introduction ratio calculation financial status ratios stock market ratios debt -short-term or long-term? summary problems Part 4 Recording business transactions: basic transactions and company accounts impact of individual transactions on accounts the accounting records and double-entry bookkeeping stages in preparing published accounts summary problems Part 5 Measuring profit and loss: profit measurement accrual accounting measuring sales revenue (turnover) treatment of expenditures measuring "revenue investments" more complex aspects of measuring profit summary problems Part 6 Valuing stock: stock in accounts trading stock flow of goods assumptions manufacturing stock long-term contracts summary problems Part 7 Fixed assets and depreciation: capital expenditure presentation in published accounts depreciation useful life and residual value methods of depreciation varying depreciation charges leasing fixed assets revaluing fixed assets summary problems Part 8 Company taxation: background corporation tax rates personal taxation adjustments to accounting profits deferred tax accounting for tax summary problems Part 9 Capital structure: capital employed ordinary shareholders' funds issues of ordinary shares creditors due after one year gearing preference share capital summary problems Part 10 Cash flow statements: why profit and cash may differ cash flow statements alternative format interpreting Tesco's cash flows key aspects of cash flow deriving a cash flow statement summary problems Part 11 Group accounts: investments in equity group accounts inter-company transactions acquisitions goodwill and intangible assets minority interests mergers non-consolidated subsidiaries associates and joint ventures summary problems Part 12 International accounting: background UK/US balance sheet formats differences in UK/US accounting practice UK/US terminology UK/US versus other countries multinationals foreign currency translation summary problems Part 13 Inflation accounting: background problems with historical money cost accounts two contrasting methods of "inflation accounting" measuring the rate of inflation historical money cost accounting constant purch

A note on the interest elasticity of the transactions demand for cash

Abstract: SASTRY I [5] has examined the effect of credit on an individual's transactionsdemand for cash-balances by amending the basic inventory-theoretic transactions-demand model to permit short-term borrowing. Wrightman and Terninko W-T [7] since have argued that Sastry's opportunity-cost formulation is incorrect and Litzenberger [4] has criticized Sastry's assumption that the individual's (or firm's) short-term borrowing rate, C2, is constant with respect to changes in its short-term lending rate, i. In incorporating Litzenberger's [4] comments, however, Sastry II [6] has ignored W-T's criticism, and as a result, Sastry's II revised results concerning the interest elasticity of the demand for money are incorrect. In this note, selected results of Sastry II are rederived under a corrected formulation equivalent to W-T. In particular, Sastry II understates the possibility of a positive interest elasticity of the demand for (average) cash balances, a result of special interest given the low elasticities in empirical demand for currency equations (Lewis-Breen [3], Goldfeld [1]) and the general interest in the size and sign of the interest-rate coefficient in the demand-formoney literature. Second, Sastry's entire formulation is valid only under the assumption that the borrowing rate, C2, is a "penalty rate," greater than i. The basic Sastry framework assumes the individual receives A dollars at the beginning of the period to be spent at a uniform rate over the period. The individual buys securities at the beginning of the period (at a rate of i per the period) and retains a starting cash balance of S. Once the S has been spent, the individual has the option of liquidating some securities to replenish cash balances or acquiring goods on credit, at an interest rate of C2 per period. Eventually the individual will liquidate M of his securities, subject to a "fixed" conversion cost of C1, to repay his indebtedness and possibly to reacquire cash balances.' Given the above notation, several simple algebraic results derived in Sastry I [ 5 ] and W-T [ 7 ] follow:

Simulation of a corporate cash budget: Application and validation

Abstract: The importance of cash budgeting has been thoroughly discussed in the financial literature, but the application of this technique to actual problems has not been fully developed. The failure to consider the random nature of certain critical financial variables such as sales and purchases is the concern of this paper. Frequently, it is suggested that the financial manager make point estimates of relevant variables such as gross sales and based upon these estimates calculate the resulting net cash flows. The authors of this paper question the validity of point estimates for use in short-term financial decision making.This paper describes the results of an actual simulation of a firm's cash budget. The mathematical model utilized was developed previously by the authors. The modification and application of the model to a specific firm is described along with a step by step description of the actual cash budget simulation. The results of this application are presented along with a discussion of the model validation and a comparison of simulated versus actual end-of-month cash flows. The importance of this research lies in the resulting ability to provide the financial decision maker with a probability distribution of cash flows. Utilizing the probability distribution, the financial manager can select a short-term financial strategy consistent with his attitude toward risk.