Analyze the CFO, CFI, CFF and free cash flow following cash flow statment: Conso
ID: 2790404 • Letter: A
Question
Analyze the CFO, CFI, CFF and free cash flow following cash flow statment:
Consolidated Statements of Cash Flows - USD ($) 12 Months Ended Dec. 31, 2016 Dec. 31, 2015 Dec. 31, 2014 Operating activities: Net earnings $ 900,416,000 $ 193,030,000 $ 778,564,000 Adjustments: Depreciation 613,192,000 625,757,000 652,000,000 Amortization 73,862,000 74,260,000 72,423,000 Stock-based compensation 56,511,000 45,794,000 46,384,000 Deferred income taxes 71,455,000 (246,836,000) 70,801,000 Distributions from affiliates 40,602,000 15,132,000 53,738,000 Equity in earnings of unconsolidated affiliates (38,757,000) (5,329,000) (13,505,000) Impairments and losses on assets 244,833,000 25,393,000 Changes in assets and liabilities (exclusive of acquisitions and dispositions): Accounts receivable (217,736,000) 655,489,000 (179,181,000) Inventories (132,639,000) 1,061,202,000 11,326,000 Accounts payable 236,788,000 (438,788,000) (111,859,000) Federal income taxes 3,555,000 62,656,000 (111,687,000) Salaries, wages and related accruals 133,544,000 (56,267,000) 67,973,000 Other operating activities (3,260,000) (73,890,000) (19,472,000) Cash provided by operating activities 1,737,533,000 2,157,043,000 1,342,898,000 Investing activities: Capital expenditures (604,840,000) (374,123,000) (667,982,000) Investment in and advances to affiliates (63,167,000) (80,409,000) (97,841,000) Divestiture of affiliates 135,000,000 Repayment of advances to affiliates 122,000,000 Disposition of plant and equipment 18,571,000 29,390,000 36,563,000 Acquisitions (net of cash acquired) (474,788,000) (19,089,000) (768,581,000) Purchases of investments (650,000,000) (111,927,000) (100,000,000) Proceeds from the sale of investments 600,000,000 111,452,000 27,529,000 Other investing activities 14,106,000 3,010,000 10,250,000 Cash used in investing activities (1,025,118,000) (441,696,000) (1,438,062,000) Financing activities: Net change in short-term debt (33,360,000) (155,816,000) 178,308,000 Repayment of long-term debt (16,300,000) (5,358,000) Issuance of common stock 15,751,000 424,000 5,614,000 Excess tax benefits from stock-based compensation 2,784,000 2,000,000 3,400,000 Distributions to noncontrolling interests (99,588,000) (71,938,000) (63,705,000) Cash dividends (481,083,000) (479,432,000) (475,123,000) Acquisition of treasury stock (5,173,000) (66,505,000) 0 Other financing activities (13,297,000) (2,184,000) (2,183,000) Cash used in financing activities (613,966,000) (789,751,000) (359,047,000) Effect of exchange rate changes on cash 8,043,000 (10,271,000) (4,897,000) Increase (decrease) in cash and cash equivalents 106,492,000 915,325,000 (459,108,000) Cash and cash equivalents-beginning of year 1,939,469,000 1,024,144,000 1,483,252,000 Cash and cash equivalents-end of year 2,045,961,000 1,939,469,000 1,024,144,000 Non-cash investing activity: Change in accrued plant and equipment purchases $ 12,837,000 $ (9,355,000) $ (99,115,000)Explanation / Answer
Cash Flow From Operation
CFO has improved from $ 1.3 B in 2014 to $ 2.1 B in 2015 and dipped to $1.7B in 2016. The rise in 2015 has been mainly due to account receivable collection and much higher movement of inventory signifying positive cash inflows. The nete earnings in 2015 has shown a big dip due to the impairments and losses on assets which has shown a nearly 100% jump from 2014. This raised doubts on whether management is trying to project a conservative accounting picture to show higher earnings in the next year. In 2016 the CFO had shown a dip to the tune of $ 0.4 B driven mainly by change in inventory(higher inventory addition) and higher receivables(more credit sales). The impairment effect in 2015 also had an effect on the cash flows in 2016. However, in 2016 the change in account payable is positive signalling better credit terms or longer credit duration from its creditors.
Cash Flow From Investing Activities
CFI in 2015 has shown a decrease compared to 2014 mainly due to decreased Capex and lower acquisitions . 2014 had shown a positive cash inflow in the form of repayment of loan to affiliates. In 2015, proceeds from sale of investments has been more than 4 times in 2014. In 2016, CFI has again increased due to higher capex and large acquisitions net of cash. A one time cash flow from divestiture in affiliates is shown in 2016. The investment purchase also has shown a substantial increase in 2016 signifying more focus towards non operating income by the management. The management had also disposed off more than 5 times the investments in 2016 mainly could be due to held for maturity securities as they have registered a corresponding purchase too.
Cash flow From Financing
Cash outflow from financing activity has shown an increase in 2015 due to repayment of a long term debt and lesser issuance of common stock. There has also been higher treasury stock acquisition in 2015 showing share buy back and managements intention to better the share attractiveness in the market. In 2016 , however the cash outlfow has decreased compared to 2015 as there was no long term debt repayment and decrease in short term debt repayment. The common stock issuance has shown an increase of almost 4 times in 2016 and this could be attributed to the management's buy back decision which has improved the share prospects in the market. Other financing activities have shown an increase of more than 6 times in 2016 signifying other financing methods employed by the company in 2016. This could be attributed to financing costs like debt issue costs,minority interests etc.