Invest With Confidence

Getting to Know The Numbers

1. Income Statement
2. Balance Sheet
3. Cash Flow Statement
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Cash Flow Statement

This shows key portions of the Statement of Cash Flow Items. This statement is considered by some investors to be the most important, due to its insight into the financial activities of the company. It tells you exactly where the company generated its cash from and how it was used. It always pays to key off the largest numbers, especially when looking at the Statement of Cash Flows. That will give you a good sense of what might make a difference and where you need to focus your attention.

SELECTED STATEMENT OF CASH FLOW ITEMS (INDIRECT Method)
	ANNUAL			YEAR TO DATE
	12 MONTHS ENDING 12/31/95	12 MONTHS ENDING 12/31/96	12 MONTHS ENDING 12/31/97	9 MONTHS ENDING 09/30/97	9 MONTHS ENDING 09/30/98

Net Income	1,427,300	1,572,600	1,642,500	1,231,600	1,201,600
Depreciation & Amort.	709,000	742,900	793,800	557,000	648,300
Non Cash Items	-4,200	32,900	-110,700	0	0
Other Operating CF	164,100	112,600	116,700	-68,400	147,500
Total Operating CF	2,296,200	2,461,000	2,442,300	1,720,200	1,997,400

Capital Expenditures	-2,063,700	-2,375,300	-2,111,200	-1,444,000	-1,350,100
Other Investing CF	-45,300	-195,000	-106,000	-102,200	-50,100
Total Investing CF	-2,109,000	-2,570,300	-2,217,200	-1,546,200	-1,400,200

Dividends Paid	-226,500	-232,000	-247,700	-186,300	-179,500
Sale (Purch.) of Stock	-314,500	-599,900	-1,113,100	-568,400	-1,049,100
Net Borrowings	445,100	779,300	1,001,500	415,000	390,100
Other Financing CF	63,600	157,000	145,700	146,000	204,200
Total Financing CF	-32,300	104,400	-213,600	-193,700	-634,300

Exchange Rate Effect	0	0	0	0	0
Net Change In Cash	154,900	-4,900	11,500	-19,700	-37,100

Note: Units in Thousands of U.S. Dollars.

The Statement of Cash Flow is divided into three sections. The Operating section tells you how the company's basic business performed. The Investing Section will highlight capital expenditures, purchase of investment securities, and acquisitions. This is how the company has invested its money for the future. The Financing Section shows if the company borrowed money, or if the company issued or repurchased shares. The Net Change in Cash is equal to the net effects of what the company generates in operations, spends to invest for the future, how it finances itself, and the impact of foreign currency adjustments.

You want to see a company in which Net Income plus Depreciation are greater than Capital Expenditures plus Dividend Payments. This is the definition of Free Cash Flow. If a company has Free Cash Flow, then it can finance its growth and finance its dividend payments from internal sources. If a company doesn't have a positive Free Cash Flow, it may have to sell equity which will dilute your holdings, borrow money, sell assets, or use its working capital more efficiently. The cash flow statement provides insight into which of these sources funded the company's activities in the period(s) in question.

Some of the items to look for in the statement of cash flows include:

Positive and growing cash from operations
Large and growing capital expenditures means that the company is investing in its future
Repurchase of stock represented by a negative number (as it is a use of cash) is generally positive. Sales of stock (positive values) are generally negative unless explained by rapid growth which often requires additional equity capital.
A negative number for net borrowings indicating a repayment of debt is generally positive. A profitable company with low financial leverage taking on some new debt may also be positive. A highly leveraged company taking on more debt can be dangerous.

Finally, the exchange rate effect is the impact of fluctuation in foreign currency exchange rates in the Statement of Cash Flows on the resulting Net Change in Cash. Currency translation will impact companies with significant foreign operations or companies with significant import and export activities, and represents an additional business risk of the company. A company engaged in significant foreign business may see its growth in local currency enhanced or offset by rising or deteriorating exchange rates of that local currency into home currency (i.e. the U.S. dollar). Be wary of large, volatile changes in this adjustment factor relative to Net Income or the Net Change in Cash.

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