Question

111-58. Interpreting the Statement of Cash Flows Following is the statement of cash flows for Roger's Communications, a Canadian company operat- ing in the telecom and media industry. LO1,5 Roger's Communications ROGER'S COMMUNICATIONS Consolidated Statements Of Cash Flows Years ended December 31 (in millions of Canadian dollars) 2015 2014 .............................................. $1,381 1.38 1 $1,341 2,277 87 774 466 2,144 66 817 506 37 55 (34) (16) (102) 82 48 Operating activities: Net income for the year ................. Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization .. Program rights amortization ... Finance costs ................ Income taxes.... Stock-based compensation ... Post-employment benefits contributions, net of expense Gain on acquisition of Mobilicity. Other ......................................................... Cash provided by operating activities before changes in non-cash working capital, income taxes paid, and interest paid Change in non-cash operating working capital items .... Cash provided by operating activities before income taxes paid and interest paid Income taxes paid .. Interest paid ....... Cash provided by operating activities ..... ........... Investing activities: Additions to property, plant and equipment... . Additions to program rights ....... ................ Change in non-cash working capital related to property, plant and equipment and intangible assets ... Acquisitions and other strategic transactons, net of cash acquired ........ Other............................................................. Cash used in investing activities ...... 5,004 (302) 4,702 (184) (771) 3,747 4,925 11 4,936 (460) (778) 3,698 (2,440) (64) (116) (1,077) (70) (3,767) (2,366) (231) 153 (3,456) (51) (5,951)

Answer 1

a) Operating cash flow means the cash movement due to the principal business of the compnay. Net Income is computed after considering various accruals and estimates for expenses which does not result in the actual cash flow. These items are considered to give the true and fair view of the financial statements. One such item is the depreciation and amortization which are the non cash items but are important part of the Profit & Loss account. Depreciation is the wear and tear cost of the tangible fixed assets provided in the Profit & Loss account over their life whereas amortization is the similar cost in respect of intangible assets. As both are the non cash items and does not impact the actual cash flows, these are added back to the Net income in order to derive the Operating Cash flow. b) Sometimes the employees of the compnay generally the senior management people like Directors are paid compensation in the form of Equity/shares. In such a case, there is no actual cash flow involved. The accounting entry will be as Compensation account Debit to Shares account. This compensation is part of the Profit & Loss account but a non cash item, therefore added back to the Net income in order to arrive at the Operating cash flow. c) Additions to Property, plant and equipment represents that company is investing in future operations, however it leads to significant cash outflow at present. We cab say that the company is in the growth stage therefire it is spending so much on PPE.

d) Please see below the summary of financing activity: Net repayment of short term borrowings Net issuance of Long term debt Net proceeds from settlement of Debt derivatives Transaction cost Dividend paid (42) 754 129 (9) (977) (145) Net cash outflow of $145 is majorly due to payment of dividend on one hand amounting to $977 and proceeds received from long term debt and debt derivatives amounting to $883 e) Negative amount of Accounts receivable in the working capital changes signify the increase in accounts receivable by $185 in the current year over the last year. As the Accounts receivable increases, it means there is no or less collection from the debtors as compared to last year and hence shown as cash outflow. Positive amount of accounts payable and accrued liabilities signify increase in the accounts payable in the current year as compared to last year. Increase in accounts payable means that the company has not paid the liabilities and therefore cash is still lying with the company. Therefore it is shown as cash inflow.