Summary

Summary FIN3702 - Summarised Notes Latest 2022

23 views 2 purchases

Course
FIN3702 - Working Capital Management (FIN3702)

Institution
University Of South Africa

FIN3702 - Summarised Notes Latest 2022. FIN3702 - Working Capital Management Analyzing a firms cash flow Module objectives: - Explain tax depreciation procedures and effect on business’ cash flow - Explain why cash flow statement is different to the income statement - Prepare a cash flow sta...

[Show more]

Preview 4 out of 42 pages

View example

Uploaded on September 27, 2022
Number of pages 42
Written in 2022/2023
Type Summary

fin3702
fin3702 working capital management
working capital management
fin3702 summarised notes latest 2022
fin3702 summarised notes latest

Institution
University of South Africa
Course
FIN3702 - Working Capital Management (FIN3702)

STUDYCENTER2024

Member since 3 year 1810 documents sold

113

CA$8.70

Added

Add to cart

Add to wishlist

100% satisfaction guarantee
Immediately available after payment
Both online and in PDF
No strings attached

FIN3702 -
Summarised Notes
Latest 2022
Working Capital Management

,Analyzing a firms cash flow

Module objectives:
- Explain tax depreciation procedures and effect on business’ cash flow
- Explain why cash flow statement is different to the income statement
- Prepare a cash flow statement
- Prepare and operating cash flows and free cash flows

Introduction to analyzing a firm’s cash flow
1. Why is cash flow the lifeblood of a firm?
o Managing day-to-day operations
o Making strategic financial decisions and increasing shareholder value
o Operating cash flow line is monitored closely by managerial decision
making
o Free cash flow is monitored by capital markets as “cash pays the bills”
2. What are the key items affecting a firm’s cash flow?
o Depreciation
o Other non-cash items

Depreciation
Depreciation is to charge a portion of costs of fixed assets systematically against annual
revenues. It allocates the historical cost over time.
Accounting: Depreciation of historical cost over time
Depreciable life of an asset is the time period which as asset is depreciated and can
significantly affect the pattern of cash flows. How?
Tax purposes: the charge is regulated by SARS and may differ from the accounting
charge (wear and tear allowance - WTA)
The WTA applies to both new and used assets
Method of calculation:
1. Determine depreciable value of an asset = The amount to be depreciated
1.1 Initial cost of the asset R400 000
1.2 Outlays for installation R20 000
1.3 Minus: Expected salvage value (R5 000)
Depreciable value of the asset R415 000
2. Determine the recovery period and depreciate using the straight-line method
2.1 Recovery period is the appropriate depreciable life of a particular asset as
determined by WTA – SARS rules
2.2 Five broad recovery period categories – 3, 4, 5, 10 and 20 years (excluding
real estate) –

Page 3

, Figure 1 - Source Principles of Managerial FInance Lawrnece J. Gitman
Example:
ABC company acquired a new air conditioner system for an installed cost of R25 000 6
months into its financial reporting period. Management believes that the machine’s
expected useful life is only 4 years. Calculate the depreciation and WTA for the machine
for each year.
Year Cost (R) Depreciation Depreciation WTA rate – WTA
rate (R) from tables
1 25 000 12.5% 3 125 10% 2 500
2 25 000 25% 6 250 20% 5 000
3 25 000 25% 6 250 20% 5 000
4 25 000 25% 6 250 20% 5 000
5 25 000 12.5% 3 125 20% 5 000
6 25 000 0% 10% 2 500
Total 100% 25 000 100% 25 000

Developing the statement of cash flows
Sources of inflows:
- Decrease in asset – generally????
- Increase in liability
- Net profits

Page 4

, - Depreciation and other non-cash accounting charges
- Sale of shares

Sources of outflows:
- Increase in asset
- Decrease in liability
- Net loss
- Dividends paid
- Repurchase of shares

Format of cash flow statement
ABC Company
Statement of Cash Flows for the year ended Dec 2013
1. Cash flow from operating activities 850
Net profit before tax 1000
Elimination of items included in PBT which do not represent cash flow
Plus: Depreciation 100
(Increase)/decrease in trade receivables (100)
(Increase)/decrease in inventories (300)
Increase/(decrease) in trade and other payables 150

2. Cash flow from Investing activities (400)
-Additions in GROSS non-current assets (1000)
-Replacement of equipment 0
+Proceeds on sale of equipment 500
Investment in equity investments/sale of equity investments 100

3. Cash flow from financing activities 400
Increase/(decrease) in short-term debt -100
Increase/(decrease) in long-term debt 0
Changes in shareholder’s equity 300
-Dividends paid 200

Net increase in cash and marketable securities 850

Notes:
1. Operating cash flow
- Cash flow from normal opertions
- Remove interest and tax from operating cash flow to determine the “true” cash
flow from operations without the effect of interest and tax
- To obtain net profit after tax (NOPAT) = EBIT x (1-T)
- To convert NOPAT to OCF = NOPAT +depreciation

Page 5

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller STUDYCENTER2024. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for CA$8.70. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

75632 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling

Summary

Summary FIN3702 - Summarised Notes Latest 2022

Document information

Subjects

Written for

Seller

Reviews received

Content preview