Principles of Corporate Finance_ 12th Edition

Chapter 29 Financial Planning 763

bre44380_ch29_759-786.indd 763 10/06/15 09:53 AM

cash are shown as negative numbers. Dynamic’s cash flow statement shows that Dynamic
generated cash from the following sources:

1. It earned $60 million of net income (operating activity).


2. It set aside $20 million as depreciation. Remember that depreciation is not a cash
   outlay. Thus, it must be added back to obtain Dynamic’s cash flow (operating activity).


3. It reduced inventory, releasing $5 million (operating activity).

515

320

80

240

110

25

25

150

125

325

575

350

100

250

0

135

135

90

350

575

0

20

125

130

275

25

135

60

320

515

Current liabilities:

Total current liabilities

Long-term debt

Net worth (equity and retained earnings)

Total liabilities and net worth

Bank loans

Accounts payable

Gross investment

Less depreciation

Cash

Marketable securities

Accounts receivable

Inventory

Total current assets

Fixed assets:

Net fixed assets

Total assets

Current assets:

(^20152014) ❱ TABLE 29.2
Year-end balance sheets
for 2015 and 2014 for
Dynamic Mattress
Company (figures in $
millions).
❱ TABLE 29.3^ Statement of
cash flows for Dynamic Mattress
Company, 2015 (figures in $
(^20) millions).
60

• 25
  5
  25
  85


• 30


• 30

30

• 25


• 25


• 50

5

Decrease (increase) in accounts receivable

Decrease (increase) in inventories

Increase (decrease) in accounts payable

Net cash flow from operating activities

Cash flows from investing activities:

Investment in fixed assets

Cash flows from financing activities:

Sale (purchase) of marketable securities

Increase (decrease) in long-term debt

Increase (decrease) in short-term debt

Net cash flow from financing activities

Increase (decrease) in cash balance

Depreciation

Net income

Dividends

Cash flows from operating activities: