Question

To analyze the financial statements of a publicly traded company

COMPANY IS BEST BUY

Obtain an annual report from a publicly traded corporation that is interesting to you. Be sure the company’s financial statements include deferred taxes, postretirement benefits, dilutive securities, and share-based compensation.

1. What kind of share-based compensation does the company have? What was compensation expense for the two most recent years? What are the key elements of this plan discussed in the footnotes? Please identify and describe other types of share-based compensation.
2. Does the company use the direct or indirect cash flow presentation method? What is the difference between these two methods? How does the cash flow statement agree to the other financial statements?
3. What investing and financing activities does the company have? What are some other examples of investing and financing activities?
4. What noncash transactions does the company have on its cash flow statement? What are some other examples of noncash transactions?

Answer 1

My company choosen: Morgan stanley

Morgan Stanley annual/quarterly stock-based compensation history and growth rate from 2006 to 2020. Stock-based compensation can be defined as the estimated market value of stock options, warrants and other stock-based compensation given to employees and/or vendors

Morgan Stanley stock-based compensation for the quarter ending June 30, 2020 was $0.548B, a 7.43% decline year-over-year.

Morgan Stanley stock-based compensation for the twelve months ending June 30, 2020 was $2.680B, a 5.18% increase year-over-year.

Morgan Stanley annual stock-based compensation for 2019 was $1.153B, a 25.33% increase from 2018.

Morgan Stanley annual stock-based compensation for 2018 was $0.92B, a 10.33% decline from 2017.

Morgan Stanley annual stock-based compensation for 2017 was $1.026B, a 9.68% decline from 2016.

Key elements of the plan:

Deferred incentive compensation with three-year vesting, cancellation and clawback and no automatic vesting upon change-in-control

Performance-vested long-term equity incentive award where shares earned can range from 0 to 1.5x target based on three-year performance against return on average common equity (ROE) and total shareholder return (TSR) objectives

Equity-based compensation with share ownership and retention requirements Executive compensation best practices, including prohibitions on pledging, hedging, selling short or trading derivatives and no excise tax protection upon change-in-control.

Types of Equity Compensation

Compensation that’s based on the equity of a business can take several forms.

Common types of compensation include:

·Shares

·Restricted Share Units (RSUs)

·Stock Options

·Phantom Shares

·Employee Stock Ownership Plan (ESOP)

The company uses indirect method for cash flow statement.

Main Difference between Direct and Indirect Method of CFS

The main difference between the direct method and the indirect method of presenting the statement of cash flows (SCF) involves the cash flows from operating activities. (There are no differences in the cash flows from investing activities and/or the cash flows from financing activities.)

Under the U.S. reporting rules, a corporation has the option of using either the direct or the indirect method. However, surveys indicate that nearly all large U.S. corporations use the indirect method.

1. Cash Flow from Operating Activity- Direct Method

While preparing the Cash Flow Statement as per Direct Method, Actual Cash Receipts from Operating Revenues and Actual Cash Payments for Operating Activities are arranged and presented in the Cash Flow Statement. The difference between Cash Receipts and Cash Payments is the Net Cash Flow from Operating Activities under the Direct Method. In other words, it is a Income Statement (Profit & Loss A/c) prepared on Cash Basis under the Direct Method.

While preparing the Cash Flow Statement as per Direct Method, items like Depreciation, Amortisation of Intangible Assets, Preliminary Expenses, Debenture Discount etc are ignored from Cash Flow Statement since the Direct Method includes only Cash Transactions and Non-Cash Transactions are omitted.

2. Cash Flow from Operating Activity – Indirect Method

While preparing the Cash Flow Statement as per the Indirect Method, the Net Profit/Loss for the period is used as the base and then adjustments are made for items that affected the Income Statement but did not affect the Cash

While preparing the Cash Flow Statement as per the Indirect Method, Non Cash and Non Operating charges in the Income Statement are added back to the Net Profits while Non-Cash & Non-Operating Credits are deducted to calculate the Operating Profit before Working Capital Changes. The Indirect Method of preparating of Cash Flow Statement is a partial conversion of accrual basis profit to Cash basis profit. Further, necessary adjustments are made for Increase/Decrease in Current Assets and Current Liabilities to obtain Net Cash Flows from Operating Activities as per the Indirect Method.

II. Cash Flow from Investing Activities

The activities of Acquisition and Disposal of Long Term Assets and other Investments not included in cash equivalents are Investing activities. Separate disclosure of Cash Flows arising from Investing Activities is important because the Cash Flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.

III. Cash Flows from Financing Activities

Financing Activities are those activities which result in a change in the size and composition of owner’s capital and borrowing of the organisation. The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting the claims on future cash flows by the providers of funds.

How does cash flow statement agree to other financial statement?

The statement of cash flows, or the cash flow statement, is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.

The cash flow statement (CFS) measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. The cash flow statement complements the balance sheet and income statement and is a mandatory part of a company's financial reports

WHAT FINANCING AND INVESTING ACTIVIOTIES DOES COMPANY HAVE?

Investing Activities

	5-year trend
Capital Expenditures
Capital Expenditures (Fixed Assets)
Capital Expenditures (Other Assets)
Net Assets from Acquisitions
Sale of Fixed Assets & Businesses
Purchase/Sale of Investments
Purchase of Investments
Sale/Maturity of Investments
Increase in Loans
Decrease in Loans
Other Uses
Other Sources

Financing Activities

	2019	5-year trend
Cash Dividends Paid - Total	(2.63B)
Common Dividends	(2.63B)
Preferred Dividends	-
Decrease in Deposits	-
Increase in Deposits	2.51B
Change in Capital Stock	(5.46B)
Repurchase of Common & Preferred Stk.	(5.95B)
Sale of Common & Preferred Stock	497M
Proceeds from Stock Options	497M
Issuance/Reduction of Debt, Net	(5.21B)
Change in Current Debt	1.04B
Change in Long-Term Debt	(6.25B)
Issuance of Long-Term Debt	30.61B
Reduction in Long-Term Debt	(36.85B)
Other Funds	(147M)
Other Uses	(147M)
Other Sources

EXAMPLES OF INVESTING ACTIVITIES:

Investing activities that were cash flow negative are highlighted in red and include:²

·Purchases of marketable securities for $21.9 billion

·Payments acquiring property, plant, and equipment for $7.7 billion

·Payments for business acquisitions and non-marketable securities

^·Investing activities that were cash flow positive are highlighted in green and include:²



·Proceeds from maturities of marketable securities for $26.7 billion

·Proceeds from the sale of marketable securities for $49.5 billion

Example of Cash Flow from Financing Activities

Below is an example from Amazon’s 2017 annual report and form 10-k. In the bottom area of the statement, you will see the cash inflow and outflow related to financing.

Activities in financing are:

Inflow: proceeds from issuing long-term debt

Outflow: repayment of long-term debt

Outflow: principal repayments of capital lease obligations

Outflow: principal repayments of finance lease obligations

NON CASH TRANSACTIONS OF THYE COMPANY:

DEPRECIATION AND AMORTIZATION:$2643

OTHER NON CASH ITEMS: $1285

NON CASH TRANSACTION EXAMPLES:

Depreciation and amortization are perhaps the two most common examples of expenses that reduce taxable income without impacting cash flow. Companies factor in the deteriorating value of their assets over time in a process known as deprecation for tangibles and amortization for intangibles.

For example, say a manufacturing business called company A forks out $200,000 for a new piece of high-tech equipment to help boost production. The new machinery is expected to last 10 years, so company A’s accountants advise spreading the cost over the entire period of its useful life, rather than expensing it all in one big hit. They also factor in that the equipment has a salvage value, the amount it will be worth after 10 years, of $30,000.

Depreciation seeks to match up profit with its associated expenses. Dividing $170,000 by 10 means that the equipment purchased will be shown as a non-cash item expense of $17,000 per year over the next decade. However, no money was actually paid out when these annual expenses were recorded, so they appear on income statements as a non-cash charge.