Cash flows balance

The relationships among the various annual costs given by Eqs. (9-1) through (9-9) are illustrated diagrammaticaUy in Fig. 9-1. The top half of the diagram shows the tools of the accountant the bottom half, those of the engineer. The net annual cash flow Acp, which excludes any provision for balance-sheet depreciation Abd, is used in two of the more modern methods of profitability assessment the net-present-value (NPV) method and the discounted-cash-flow-rate-of-return (DCFRR) method. In both methods, depreciation is inherently taken care of by calculations which include capital recoveiy. 

The reconciliation between the cash flow statement and the income and expense statement is as follows. Start with the 40,000 from the last line in the cash flow statement, subtract 20,000 for the depreciation expense, and add back the 30,000 mortgage loan principal payment (not an allowed expense). The result is the net after-tax earnings. Figure B.ll is a set of statements from a small oil company. The statement of operations lists revenue and expenses, whereas the balance sheet lists various assets, liabilities, and stockholders equity ( net worth ). So-called capital items such as buildings, equipment, oil and gas property, and various intangibles are assets. Operating costs are deductions from revenues for operations not including expenditures for capital items. 

In addition a project needs to repay its costs. Therefore it is more realistic to use cashflow values rather than income values to calculate present values. A series of present values can be generated at time intervals by projecting the cash-flow of a project into the future. Obviously the early ones will tend to be negative, but hopefully they will be more than balanced by large positive present values later on when the product has become successful. NPVs (net present values) are additive. Therefore, the net present value is the summation of all the individual component cash-flow derived present values, and is... 

Consider a publicly traded company with products you are familiar with. Obtain a copy of the company s annual report. Examine and interpret the cash flow, income, and balance statements. Is the company profitable Did the company s cash position improve or degrade last year Did stockholder equity improve or degrade last year Calculate the ratios discussed in this section. Using library data or data off the Web, compare the companies averages to industry averages. In what ratios is the company s position favorable or not. 

The chapter considered the engineer s fear of financials and attempted to overcome it with a straightforward discussion of cash flow, income, and balance statements. The mathematics of these statements is simple arithmetic, but the confusion seems to come from not understanding a few key terms. The chapter also considered the utility of ratio analysis—what engineers might call dimensional analysis for companies—breakeven analysis, and the basics of the time value of money. Although a full discussion was beyond the scope of this chapter, the discussion served up the basics and may also serve to introduce more careful treatments in other courses or texts. 

Sources of finance for company acquisitions as mentioned above can be from reserves or maybe taken a senior or subordinated debt. Alternatively a bond may be issued with various characteristics offering an annuity, a balloon payment or a combination of the two. A variety of convertible structures have been utilized for this purpose as asset sales and the use of the target s balance sheet. There has also been a place for royalty transactions where the future-value of product cash flows are securitized to provide capital in the near term to achieve a company acquisition. 

The three financial reports that are essential to the operation of any organization are the balance sheet, the income statement, and the statement of cash flows (Table 15-1). Please note that several other types of financial... 

Budgeted financial statements, often called pro forma financial statements, show how the pharmacy organization s financial statements will appear at a specified time if operations proceed according to plan. Budgeted financial statements include a budgeted income statement, a budgeted balance sheet, and a budgeted statement of cash flows. 

For any business, the key to implementing and managing the opportunity will center on cash flow. First, acquiring capital to get the business started, as discussed earlier, and then, once the business is started, balancing the expenditure of money with the need to obtain more to keep the business going. Businesses often fail because they do not have enough cash when they start. It is recommended that a business have enough cash to support it for 3 years when it is started. However, this is often difficult to obtain. Additionally,... 

The net cash flow into the project each year is made up of two items the PAT and the depreciation allowance for that year. The depreciation is added to the PAT because, unlike all the other costs, it does not actually leave the balance sheet. 

For any project, the repayment of the loan must effectively come out of its proceeds over the years, i.e. the total net revenues (cash flow) must be at least as large as the amount borrowed, on top of the other costs of construction, etc. However, the repayment element of the loan is not included in a financial appraisal, because its equivalent in plant cost has already been included in the balance as part of that cost. (An alternative way of looking at this is that the company, in paying back the loan, is just replacing that part of the original cost with an equal but differently sourced sum of money.)... 

The annual net cash flow is the annual revenue for the project that is to be balanced against the investments. It is calculated as the net profit (PAT) in each year plus the depreciation allowance for that year ... 

While no hard estimates are possible, the cash flow in the Far East related to this first phase of opium production alone could not be less than 1 billion. That by itself is 15 percent of the estimated assets of foreign banks in Hong Kong, or 10 percent of estimated bank assets of foreign banks in Singapore, or precisely Thailand s 1977 balance of trade deficit ... 

Corrosion economics and corrosion management forms the theme of the fifth chapter. Discounted cash flow calculations, depreciation, the declining balance method, double declining method, modified accelerated cost recovery system and present worth calculation procedures are given, together with examples. In the second part, corrosion management, including the people factor in corrosion failure is briefly presented. Some of the expert systems presently available in the literature are briefly discussed. 

Prepare the financial statements (income statement, statement of owner s equity, balance sheet, statement of cash flows, etc.). 

The purpose of this paper is to guide or at least stimulate thinking about obtaining as much value as possible from the chemicals produced from biomass pyrolysis. At optimum, all solid and liquid products could be used for chemicals, rather than fuel. At minimum, additional cash flow could be produced by recovery or production of any high value chemicals in the liquid product, leaving the balance of the products to be used as fuel. 

The declining-balance method is an accelerated depreciation schedule that allows higher charges in the early years of a project. This helps improve project economics by giving higher cash flows in the early years. In the declining-balance method, the annual depreciation charge is a fixed fraction, Fj, of the book value ... 

The sum of cash flows from operations, investments, and financing gives the net change in cash and cash equivalents. This is then added to the cash and cash equivalents from the beginning of the year to give the cash and cash equivalents at the end of the year, which appears on the balance sheet. 

Table 15.11 presents data for the estimation of operating costs based on the above decomposition. The basis is the material and heat balance from flowsheeting, as well as the operating labour. This checklist can be used to compute the operating costs for profit and cash flow calculation. Note that the depreciation charge should be excluded, if it is accounted separately. 

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