TECK RESOURCES L IMITED:THE CASH FLOW STATEMENT

JUNE KIM & CORA LAM

BUS 251Financial Accounting I

Amortization

An artificial decrease in the value of equipment Non-cash item Subtracted in the income statement

So, why is the amortization amount added to cash? To add back the subtracted amount i.e. un-subtracting

Income Statement Cash flow Statement

Operating Performance

Vs.

Accrual Cash-based

Net Earnings from Continued Operations

2007 20080

500

1000

1500

2000

Net Earnings from continued operations

DecreasedBAD NEWS

Overall cash flow from operating activitiesIncreased

2007 20080

5001000150020002500

Overall cash flow from op-erating activities

GOOD NEWS

Which determines performance?

2007 20080

500

1000

1500

2000

2500

Net Earnings from Continued OperationsOverall cash flow from op-erating activ-ities

Net Earnings Overall Cash Flow

Increases with revenue

Decreases with amortization with asset impairment with taxes payable

Increases with revenue

Decreases with new cash

equipment purchases with tax payments

Operating Performance

In Detail

A decrease in[Net earnings from continued operations]is caused by More operating expenses More amortization/asset impairment

An increase in [Overall cash flow from operating activities]implies Net income is not manipulated

So what?

Performance: Net income = Revenue – Expense A decrease? BAD NEWS! Less ROI: less attractive to shareholders

POSITIVE cash flow from operations GOOD NEWS! Higher Liquidity

In General…

In the long-run, Net income = Cash flow But in the short-term, Net income ╪ Cash flow

Positive correlation

More income

More money

More cash

Financing

Financing: Debt

Issuance of debt Company borrowing money Liability account Decreases net income No cash flow(yet), so should be an increase in cash

flow statementSeparate information for description

Magnitudes are not minimized How much money borrowed and how much money

lent Shows a measure of expansion of equity

Financing: Debt (cont.)

Separated information of Issuance and Repayment Magnitudes are not minimized How much money borrowed and how much money

lent Shows a measure of expansion of equity

Why separate? To be more descriptive

i.e. information is not filtered by aggregating

Investing: Property, Plant and Equipment

Negative Property?

CHANGE in Property, Plant and Equipment

Looking at the balance sheet

CHANGE in Property, Plant and Equipment

Negative cash -> Cash out -> They Spent Cash.

On the Acquisition of Fording Canadian Coal Trust Overall increase in new equipment purchases

Bought more equipment than was amortized Buying a new mine Bought more equipment than used

Q?