please respond to each of the following postings separately.
Andrew-I chose my company – SAIC, Inc, for this DQ. Below is the Consolidated Cash Flow Statement as of (SAIC, 1).
I chose to analyze Net Change in Cash and the “Free Cash Flow” ratio. See below for data.
Cash Flow from Operations measures the “day to day” business activities involved in the making and selling of products or services (aka “running the business”) (Ittelson, 1). Cash from Operations is one of three major groupings on the cash statement – the other two being Cash for Investments and Cash from Financing (1). This line gives a measurement of how much cash the business is generating through its day to day operations, and encourages investors, enables investment and finance decisions, and affects consumer confidence (Siciliano, 2).
The Free Cash Flow is the money left over after satisfying all the company’s financial obligations (operating expenses plus capital expenditures) during a specific period (Siciliano, 2). This ratio indicates the ability of the company to leverage cash to make investments, pay dividends, and financial decisions (pay off debts, etc) (2).
From the Cash Flow Statement, identify the past 4 years of amounts for your line item or ratio.
Cash Flow from Operations $ in US Millions
Free Cash Flow
Free Cash Flow Ratio
What is the trend for this line item or ratio? Has the line item or ratio amount increased or decreased? Is this a “good” or a “bad” thing for this company? What might management do to improve this line item or ratio?
Cash Flow from Operations trend: steadily growing over the past 5 years. Very good sign that SAIC has ready cash for investing, paying dividends and paying debts/financial obligations. SAIC should continue seeking ways to improve cash flow while sustaining the healthy trend.
Free Cash Flow ration trend: Though over 1.0% (healthy), the trend is downward since 2018 (5 year) despite increases in Cash Flow from Operations. Overall, the healthy FCF ratio indicates liquidity and company’s ability to meet investment and financial obligations (Siciliano, 2). SAIC should continue to monitor the FCF ratio trend while seeking ways to improve cash flow while sustaining the healthy trend.
Jeffery- Professor and Classmates,
Below is my response to this week’s DQ.
Locate and post a screenshot of an actual Cash Flow Statement for the latest fiscal year.
I will review Medtronic Cash Flow Statement (Medtronic, 1). Shown below
Pick a Cash Flow Statement line item or ratio.
I choose free cash flow and the free cash flow ratio.
What does this ratio measure, and why is it important for Management to understand this number?
The Free cash flow (FCF) is the cash available for Medtronic to repay creditors, interest to investors, and dividends (Fernando, 2). An FCF ratio of 1 indicates liquidity and the company’s ability to obligations (Siciliano, 3).
Identify the past four years of data for the line item and ratio.
Cash Flow from Operation
Additions to PP&E
Free cash flow
Free Cash flow ratio
Answer the following questions
What is the trend for this line item or ratio?
Minus a bump in the FCF ratio is 2021, there is a substantial decrease over the past four years
Has the line item or ratio amount increased or decreased?
If you look at the FCF, you might think this is a substantial increase in cash flow. When you look at the FCF, you might be slightly concerned even though it is still 1.18.
Is this a good or bad thing for the company?
It is good they had more cash on hand at the end of 2022 than 2021, but the FCF shows a significant increase in net income, but the FCF ratio still went down.
What might management do to improve this line item or ratio?
I would start by looking at inventory, accounts payable, and accrued liabilities. The net inventories went from 78 to -560 in millions between 2021 and 2022. The accounts payable and accrued liabilities went from 531 to 213 million from 2021 to 2022. These drastic changes could offset your concern about the FCF ratio dropping.