Can you answer Bugoy’s question about Factoring?:

The interest I am paying for this loan is included in my net income (which is under cash flow from operations). So I am not sure what to put in the financing section. Am I supposed to put in exactly how much I received as a loan. For example, if I receive 5M dollars in loan in 2008, would this be included in this section. Also, would this be negative 5M or positive 5M.

Thank you. Any kind of help would be greatly appreciated.

Invoice Discounting

Can you answer Alex A’s question about Factoring?:

If land or houses built and in inventory are impaired and “written down” to mkt value which reduces profit on the P&L as an expense or charge, why does this figure end up as an increase on the cash flow statement?

Its a non-cash event is it not? Example: if you write down the value of land and a house (you’re a builder) for $50,000 due to fallen prices, why does this $50,000 charge end up as an increase to the cash account and improve the cash flow statement?

Obviously, I’m not an accountant and this seems very counter intuitive. If what I described is correct, you do not have an additional $50,000 in your bank account to spend.

What am I missing?

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A cash flow statement is a financial statement that shows the income and expenditures of a company for a specific period of time. Companies regularly prepare these statements on a quarterly basis although there are some that put out an annual report for their stockholders. As a holder of common stock on a company it is important that you have an understanding of the cash flow statement to determine whether or not the company is making a profit. The changes that occur on such a statement include a balance sheet, income accounts, a list of assets that could be converted to cash or its equivalent and break down the analysis into three areas: operating, investing and financing. The amount of cash flow a company has will give you a good idea of how well-equipped the company is in its ability to pay its debts.

 

The balance sheet of a cash flow statement is a bird’s eye view of a company’s financial resources and its liabilities at any given time. The income statement gives the details of the company’s sales or the income generated from its operation. These two facets of the statement are the basis of the accounting system of the company. You will not only see income and expense transactions on such a statement, but you will also see transactions that may or may not be reflected in cash values, such as write-offs in bad debts and depreciation of the assets, such as for the building and the equipment.

 

There are four main purposes for a statement of cash flow:

 

- To provide stockholders and others with information about the company’s liquidity and solvency and its ability to continue its operations.

 

- To provide information about changes in the assets and equity

 

- To improve the ability to compare its operation and performance with that of similar companies

 

- To give an idea of what future cash flow will look like

 

The divisions of a cash flow statement are: operating activities, investing activities and financing activities. It is important to be able to understand what each of these elements of the statement tell you about the company. Some of the things you will see included in each of these sections are:

 

- Operating Activities.

 

* Sales receipts

 

* Interest received on loans

 

* Dividends received on equity securities

 

* Payments to suppliers

 

* Payments to employees

 

* Tax payments

 

* Interest paid on loans

 

* Depreciation

 

* Deferred tax payments

 

* Mortgage payments

 

* Profit of loss from the sale of assets

 

- Investing Activities

 

* Collections on loan principals

 

* Investment returns

 

* Receipts from the sale of real estate or equipment

 

* Expenses associated with purchasing real estate or equipment

 

* Loans

 

* Expenses for purchase of other firms’ equity interests

 

- Investing Activities

 

* Proceeds from issuing shares

 

* Proceeds from issuing short or long term loans

 

* Payment of dividends to stockholders

 

* Payment for buying back company shares from stockholders

 

* Repayment of debts

 

* Receipts of charitable donations



Thanks to Ling Tong for contributing this article to our Factoring blog:

Non Recourse Factoring

Can you answer soeren_alexander_petersen’s question about Factoring?:

In a typical cash flow statement for year 0, do you include the total investment or just the equity investment that one injected into the project?

Also, when calculating the NPV/IRR, does one use the total investment or just the equity part?
E.g. if the equity part (such as through stocks or out-of-pocket cash) is 25% and debt financing is 75% - do you include the whole 100% in year 0 and as part of the NPV calculation or only the 25%?

Business Capital Financing

Can you answer Alex A’s question about Factoring?:

If land or houses built and in inventory are impaired and “written down” to mkt value which reduces profit on the P&L as an expense or charge, why does this figure end up as an increase on the cash flow statement?

Its a non-cash event is it not? Example: if you write down the value of land and a house (you’re a builder) for $50,000 due to fallen prices, why does this $50,000 charge end up as an increase to the cash account and improve the cash flow statement?

Obviously, I’m not an accountant and this seems very counter intuitive. If what I described is correct, you do not have an additional $50,000 in your bank account to spend.

What am I missing?

Non Recourse Factoring