1. Copyright © Texas Education Agency, 2012. All rights reserved. Cash Flow Analysis Statistics & Risk Management 1

2. Copyright © 2012 Texas Education Agency. All rights reserved. “Copyright and Terms of Service Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions: 1)Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission from the Texas Education Agency; 2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only without obtaining written permission of the Texas Education Agency; 3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way; 4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged. Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from the Texas Education Agency and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty fee. Call TEA Copyrights with any questions you have.

3. Copyright © Texas Education Agency, 2012. All rights reserved. Cash Flow Cash Flow is different from Profit. Cash Flow is different from Profit. You can be Rich but Cash Starved. You can be Rich but Cash Starved. 3

4. Copyright © Texas Education Agency, 2012. All rights reserved. Example You firm sells a million dollars in sales ON CREDIT!!!!! You firm sells a million dollars in sales ON CREDIT!!!!! You think you might get paid in 90 days????? You think you might get paid in 90 days????? 4

5. Copyright © Texas Education Agency, 2012. All rights reserved. Example You buy a prime location to build a plant for $1,000,000.00 and have a $100,000.00 payment due now. You buy a prime location to build a plant for $1,000,000.00 and have a $100,000.00 payment due now. Won’t that reduce your profit? 5

6. Copyright © Texas Education Agency, 2012. All rights reserved. Cash Flow Analysis What could be the consequences of income taxes on the profit and cash flow? $53,610=Cash Flow = +$69,000 + Net Profit +$22,500 + Payments on Accounts Receivable -$37,890 - Sales on Accounts Receivable 6

7. Copyright © Texas Education Agency, 2012. All rights reserved. Cash Flow Analysis $70,822=Cash Flow = +$69,000 + Net Profit +$5,500 + Depreciation Expense (No land allowed) -$3,678 - Service Debt on Principle 7

8. Copyright © Texas Education Agency, 2012. All rights reserved. Another Way to Look at the Same Thing. Note: This might be totally different from your Profit and Loss Statement. Notice the Dividend line. Why is this not on the Profit and Loss? 8

9. Copyright © Texas Education Agency, 2012. All rights reserved. Internal Rate of Return Used to Identify the rate (percentage) of a return on something you spend money on. You can use actual figures or projections. Used to Identify the rate (percentage) of a return on something you spend money on. You can use actual figures or projections. Great for proposals pitching new projects or equipment. Great for proposals pitching new projects or equipment. 9

10. Copyright © Texas Education Agency, 2012. All rights reserved. Net Present Value Used to put a real current value on revenue received over time. Used to put a real current value on revenue received over time. Could you sell your pension or annuity? Could you sell your pension or annuity? 10