ABSTRACT:
OCF is result of doing business, so it is very important for a corporation. To show this importance, we consider the impact of OCF on the assets and liabilities, and Owner's equity of Vinamilk corporations financial statements. On this basis, the better a financial manager can plan cash budget, investment into assets and raise the capital; the better the corporations efficiency and competitiveness are in the trends of international economic integration.
Keywords: Operation cash flow, impact, balance sheet, assets, Owner's equity, financial statements, liabilities.
1. Introduction to theory
Operation cash flow is one of the most important pieces of information that the financial manager can derive from financial statements such as balance sheet, and income statement. We will look at how cash is generated from utilizing assets and how it is paid to those that finance the purchase of the assets by the Formulas following:
OCF = EBIT + D – T (1.1)
OCF = NI + D (1.2) (when there is no interest expense)
OCF = (Sale –cost) (1-t) + (D+I) t (1.3)
OCF= Sale – cost – tax (1.4)
On the other hand:
CFFA= OCF - NCS - # NWC (1.5)
CFFA= CF to Creditors + CF to Stockholders (1.6)
And:
NCS = Ending net fixed assets – Beginning net fixed assets + Depreciation
NWC = Current asset – Current liabilities
NWC= Stockholders Equity + Long-term debt - Net fixed Assets.
∆ NWC = Ending NWC - Beginning NWC
CF to Creditors = Interest paid - Net new borrowing
Net New Borrowing = Ending LT debt - Beginning LT debt
CF to Stockholders = Dividends paid - Net new equity
Net New Equity = Ending equity - Beginning equity
From formula of (1.5); (1.1); (1.6), we can be expressed as follows:
CFFA= OCF - NCS - # NWC
∆ NWC + NCS = OCF- CFFA (1.7)
∆ NWC + NCS = (EBIT + D – T) – (CF to Creditors + CF to Stockholders ) (1.8)
Look at the formulas (1.7); and (1.8), we can see after ending a business cycle, the OCF will increase the amount of (OCF- CFFA) in the corporation. These cash flows are called incremental cash flows. It comes from [(EBIT + D – T) – (CF to Creditors + CF to Stockholders)]. Because assets are financed by long-term debt and equity, so the first OCF must be apportioned to creditors and stockholders, the residue will apportion to current asset as ∆ NWC, long-term asset as NCS.
So we study OCF to understand where it comes from and where it apportions to. These are very useful for the financial manager to plan cash budget, investment into assets and raise the capital, so that the corporation can increase economic efficiency, and sustainable development, consequently it can enhance the corporations competitiveness in the process of international economic integration.
Note:
OCF: Operation cash flow, EBIT: Earnings before interest and taxes, D: Depreciation, T: Tax, NI: Net income, t: Tax rate, I: Interest, CFFA: Cash Flow From Assets, NCS: Net Capital Spending, ∆ NWC: Changes in net working capital, CF: Cash Flow, LT: Long-term.
2. Data of vinamilk (vnm) banlance sheet
We consider Vinamilks balance sheet and income statement in the year of 2014, and 2015 as the following:
2015:
OCF = EBIT + D – T: 9,398.41 + 1,011.47 - 1,498.74 = 8,911.14
NCS = Ending net fixed assets - Beginning net fixed assets + D = 10,746.30 - 10,312.15 + 1,011.47 = 1,445.62
NWC = Current asset - Current liabilities.
Ending NWC = Ending current asset - Ending current liabilities. = 16,731.88 - 6,004.31 = 10,727.57
Beginning NWC = Beginning current asset - Beginning current liabilities = 15,457.98 - 5,453.23 = 10,004.75
Or
NWC= Stockholders Equity + Long-term debt - Net fixed Assets
Ending NWC = Ending Stockholders Equity + Ending Long-term debt - Ending Net fixed Assets = 20,923.93 + 549.94 - 10,746.30 = 10,727.57
Beginning NWC = Beginning Stockholders Equity +Beginning Long-term debt - Beginning Net fixed = 19,800.28 + 516.62 - 10,312.15 = 10,004.75
∆: Change
∆ NWC = Ending NWC - Beginning NWC = 10,727.57- 10,004.75 = 722.82
Net New Borrowing = Ending LT debt - Beginning LT debt = 549.94 - 516.62 = 33.32
CF to Creditors = Interest paid - Net new borrowing = 31.28 - 33.32 = -2.04
Net New Equity = Ending equity - Beginning equity = 17,632.62 - 17,278.50 = 354.12
CF to Stockholders = Dividends paid - Net new equity = 7,098.87 - 354.12 = 6,744.75
CFFA = OCF - NCS - ∆ NWC (2.1) = 8,911.14 - 1,445.62 - 722.82 = 6,742.70
