Question

Using the Internet or the Strayer databases, select a different company of your choice but this time analyze the Statement of Cash Flows for that chosen company. Next, discuss the change in cash flows for the three (3) different categories of cash flows and identify the totals for each category and at least one (1) significant item in each. Be sure to interpret this information in terms of the long-term health of the company. Provide support for your response

Answer 1

I have worked upon the cash flow statement of Nestle.

Data for the year ending 31st Dec 2017 and 2016 taken from:

Source: https://www.nestle.com/asset-library/documents/investors/reports/2017-fullyear-cash-flow-statement.xls retrieved on 26th February 2019

The last column titled "Change" has been calculated as 2017 value - 2016 value.

Three different types of the cash flow are shown in bold:

1. Cash flow from operating activity
2. Cash flow from Investing activity
3. Cash flow from financing activity

Rest of the descriptive answer follows after the cash flow statement.

In millions of CHF			Change
	2017	2016	2017 - 2016
Operating activities
Operating profit	10,112	13,163	(3,051)
Depreciation and amortisation	3,227	3,132	95
Impairment	3,557	640	2,917
Net result on disposal of businesses	132	0	132
Other non-cash items of income and expense	(185)	35	(220)
Cash flow before changes in operating assets and liabilities	16,843	16,970	(127)
			0
Decrease/(increase) in working capital	(243)	1,801	(2,044)
Variation of other operating assets and liabilities	393	54	339
Cash generated from operations	16,993	18,825	(1,832)
			0
Net cash flows from treasury activities	(423)	(327)	(96)
Taxes paid	(3,666)	(3,435)	(231)
Dividends and interest from associates and joint ventures	582	519	63
Operating cash flow	13,486	15,582	(2,096)
			0
Investing activities			0
Capital expenditure	(3,934)	(4,010)	76
Expenditure on intangible assets	(769)	(682)	(87)
Acquisition of businesses	(696)	(585)	(111)
Disposal of businesses	140	271	(131)
Investments (net of divestments) in associates and joint ventures	(140)	(748)	608
Inflows/(outflows) from treasury investments	593	(335)	928
Other investing activities	(134)	(34)	(100)
Investing cash flow	(4,940)	(6,123)	1,183
Financing activities
Dividend paid to shareholders of the parent	(7,126)	(6,937)	(189)
Dividends paid to non-controlling interests	(342)	(432)	90
Acquisition (net of disposal) of non-controlling interests	(526)	(1,208)	682
Purchase (net of sale) of treasury shares (b)	(3,295)	760	(4,055)
Inflows from bonds and other non-current financial debt	6,406	1,695	4,711
Outflows from bonds and other non-current financial debt	(2,489)	(1,430)	(1,059)
Inflows/(outflows) from current financial debt	(1,009)	1,368	(2,377)
Financing cash flow	(8,381)	(6,184)	(2,197)
Currency retranslations	(217)	(169)	(48)
Increase/(decrease) in cash and cash equivalents	(52)	3,106	(3,158)
Cash and cash equivalents at beginning of year	7,990	4,884	3,106
Cash and cash equivalents at end of year	7,938	7,990	(52)

Identification of a key line item in each type of cash flow:

From Operating activities:

1. Taxes payments form a significant part of the cash flow from operating activities. It's a significant outflow. Around 2.5% of the cash flow from operations are eaten away by taxes.
2. There is nothing much that company can do about it as these are regulatory payouts. From the long term perspective, a company should pay out its planned taxes to comply with geographical income tax rules. There should ideally be no default on this. This also adds to the credibility of the company and elevates the image of the company within investor's community and regulatory bodies.

From Investing activities:

1. Capital expenditure should be and would be the major contributor here. The firm has undertaken significant capital expenditure in both the financial years. Around 80% of the cash flow from investing activities originate due to capital expenditure. And this should be the case normally in case of a manufacturing / production company.
2. From the long term perspective, a company needs to invest into capacity building, asset purchase because they drive the growth in future. A healthy capital budget and investment decision can create value in the long run for shareholders as well as other stakeholders.

From financing activities:

1. Dividend paid to shareholders of the parent: Dividend paid to the shareholders of the parent company is where bulk of financing cash flows is sitting.
2. Surplus cash should be returned to the shareholders if the firm doesn't have much value creating investment avenues. Dividends may not create additional value for the shareholder, but it does go a long way in enticing the shareholders.