22 Sep Reply to Discussion posts
Post 1
1. Prepare a critical analysis of the statement of cash flows in the Form 10K report for the company that you selected for the Company Analysis Project. Using actual financial data, explain the strengths and weaknesses of the company’s cash flows over the past (most recent) 3 years?
An analysis of the statements of cash flows for Ritchie Bros. reveals a profitable company. The company has consistently generated internal cash as the cash flow from operating activities has exceeded net income each of the past three years. A significant change in the cash flow from operating activities was net changes in operating assets and liabilities which was a reduction of $65,550 (in thousands). In addition, Ritchie Bros. continued its expansion and growth for a third year in a row with the acquisition of property, plant, and equipment amounting to $16,860 (in thousands). This was in addition to intangible assets acquired for $26,152 (in thousands). The company issued stock in the amount of $28,524 (in thousands) in order to finance activities, which was significantly more than 2017 when it issued only $9,936 (in thousands). Ritchie Bros. also continued to lower its obligations by repaying long-term debt. The company’s stockholders also continue to be satisfied with a dividend distribution. The current dividend paid to stockholders was $75,678 (thousands). Ritchie Bros. has had success for the past three years with positive net income and ending cash. The company is focused on paying down debt, adding assets, and adding value to their stock.
References
UMUC. (n.d.). Analysis of stmt of cash flows examples. Retrieved from https://learn.um- uc.edu/d2l/le/content/416350/viewContent/16084353/View
http://d18rn0p25nwr6d.cloudfront.net/CIK-0001046102/5f67c868-040f-4d40-aee4-7d5cc2853422.pdf
2. Calculate the most important cash flow ratios for the company that you selected for the Company Analysis Project for the past 3 years and compare the ratios to the firm’s principal competitors? What strengths and weaknesses are noted in the analysis?
The operations cash flow ratio, or cash flow to current liabilities ratio, for Ritchie Bros. is worse than its competitor CDK Global. The operating cash flow for Ritchie Bros. was 0.38 in 2017 and decreased to 0.33 in 2018. CDK Global’s operating cash flow also decreased over the same period going from 0.85 to 0.58. The cash being generating by CDK Global puts it in a better position to pay off its current liabilities, but neither company’s ratio is over 1. The cash return on assets ratio, which measures asset performance, for Ritchie Bros. also decreased going from 0.29 in 2017 to 0.24 in 2018. The same ratio improved for CDK Global going from 0.34 to 0.49. CDK Global is getting more out of their assets, however neither company relies heavily on its assets for generating revenue. The cash flow per share is similar to earnings per share as it gives the potential value of a stock, and it is a better indicator because less manipulation can happen with cash flows than with company earnings. The cash flow per share for CDK Global was $2.06, $2.84, and $2.79 in 2017, 2018, and 2019 respectively. The cash flow per share for Ritchie Bros. was $1.52, $0.67, and $0.93 through the same period. Ritchie Bros. profitability has declined while CDK Global’s profitability has increased.
3. For the company that you selected for the Company Analysis Project, explain the differences in cash flows and net income for each of the most recent 3 years?
Ritchie Bros. cash generating by operating activities has consistently exceeded net income over the past three years. The ratio of cash flow from operating activities to net income between 2016-2018 has been 1.90, 1.96, and 1.19. The company’s earnings have been backed by cash, however they have declined sharply. Ritchie Bros. has had a net decrease in total cash that past two years, which were decreases of $426,973 in 2017 and $25,549 in 2018 (amounts in thousands). During this time period the company has used considerable cash toward repaying long-term debt and capital acquisitions. In contrast net income increased from 2017 to 2018. The difference between the two is net income deals with profit earned during the period while cash flows are cash related activities. Revenue can be recognized without receiving payment, and cash is an asset that must be used for all cash flow activities.
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1. Prepare a critical analysis of the statement of cash flows in the Form 10K report for the company that you selected for the Company Analysis Project. Using actual financial data, explain the strengths and weaknesses of the company’s cash flows over the past (most recent) 3 years?
Below is Macerich’s Statement of Cash Flows reported in the companies 2081 10-K filing, it contains data from 2016 – 2018; all numbers are reported in the thousands. By far the most startling figure on Macerich’s Cash Flow Statement, is carried over from the income statement, which is the companies Net Income listed at the top of the statement. From 2016 2018 Macerich has seen a reduction in Net Income by -87.57%. The drastic change in net income has caused the reduction in cash flows provided by operating and financing activities. However, the companies cash used in financing has dropped, primarily due to the reduction in payments on long-term debt (mortgages, bank and other notes payable).
| CONSOLIDATED STATEMENTS OF CASH FLOWS – USD ($) $ in Thousands | 12 Months Ended | ||
| Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
| Cash flows from operating activities: | |||
| Net income | $ 68,972 | $ 161,673 | $ 554,839 |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Gain on extinguishment of debt, net | 0 | 0 | (1,709) |
| Loss (gain) on sale or write down of assets, net | 31,825 | (42,446) | (415,348) |
| Depreciation and amortization | 334,682 | 341,275 | 355,358 |
| Amortization of net premium on mortgage notes payable | (929) | (3,277) | (4,048) |
| Amortization of share and unit-based plans | 27,367 | 30,799 | 33,288 |
| Straight-line rent adjustment | (11,755) | (8,597) | (5,237) |
| Amortization of above and below-market leases | (1,946) | (964) | (12,815) |
| Provision for doubtful accounts | 4,663 | 4,314 | 3,586 |
| Income tax (benefit) expense | (3,604) | 15,594 | 722 |
| Equity in income of unconsolidated joint ventures | (71,773) | (85,546) | (56,941) |
| Change in fair value of financing arrangement obligation | (15,225) | 0 | 0 |
| Co-venture expense | 0 | 13,629 | 13,382 |
| Distributions of income from unconsolidated joint ventures | 1,959 | 463 | 7,248 |
| Changes in assets and liabilities, net of acquisitions and dispositions: | |||
| Tenant and other receivables | (13,912) | (6,508) | (7,585) |
| Other assets | 8,439 | (4,414) | (20,033) |
| Due from affiliates | (3,019) | (13,982) | 15,983 |
| Accounts payable and accrued expenses | (2,159) | (5,822) | (8,929) |
| Other accrued liabilities | (9,274) | (9,802) | (22,227) |
| Net cash provided by operating activities | 344,311 | 386,389 | 429,534 |
| Cash flows from investing activities: | |||
| Development, redevelopment, expansion and renovation of properties | (181,089) | (160,343) | (211,616) |
| Property improvements | (56,142) | (41,807) | (47,863) |
| Proceeds from repayment of notes receivable | 1,043 | 7,073 | 3,677 |
| Deferred leasing costs | (28,769) | (31,655) | (28,074) |
| Distributions from unconsolidated joint ventures | 536,643 | 267,964 | 444,095 |
| Contributions to unconsolidated joint ventures | (181,239) | (117,538) | (430,428) |
| Proceeds from sale of assets | 85,876 | 255,294 | 724,275 |
| Net cash provided by investing activities | 176,323 | 178,988 | 454,066 |
| Cash flows from financing activities: | |||
| Proceeds from mortgages, bank and other notes payable | 415,000 | 1,430,000 | 3,201,138 |
| Payments on mortgages, bank and other notes payable | (469,814) | (1,219,728) | (2,437,891) |
| Deferred financing costs | (275) | (8,500) | (10,584) |
| Payment of finance deposits, net of refunds received | (6,542) | 0 | 0 |
| Payment of debt extinguishment costs | 0 | 0 | (14,419) |
| Proceeds from share and unit-based plans | 1,570 | 1,868 | 1,697 |
| Stock repurchases | 0 | (221,428) | (800,018) |
| Redemption of noncontrolling interests | (759) | (920) | (30) |
| Contributions from noncontrolling interests | 16 | 30 | 90 |
| Settlement of contingent consideration | 0 | 0 | (10,012) |
| Dividends and distributions | (453,634) | (443,839) | (779,308) |
| Distributions to co-venture partner | 0 | (103,752) | (18,165) |
| Net cash used in financing activities | (514,438) | (566,269) | (867,502) |
2. Calculate the most important cash flow ratios for the company that you selected for the Company Analysis Project for the past 3 years and compare the ratios to the firm’s principal competitors? What strengths and weaknesses are noted in the analysis?
The table below outlines Macerich’s viability ratios; all centered around net cash from operating activities. As is the case with many other ratios for Macerich, the viability ratios illustrate a company which is desperate need of assistance to help alleviate the debt to cash flow ratios. Aside from that Macerich does do decently well as generating cash flow from revenues, with measures near 40% for the past 3 years.
| Viability Ratios | 2018 | 2017 | 2016 |
| Current Liability Coverage | 0.08 | 0.10 | |
| Cash Flow Margin | 35.85% | 38.89% | 41.25% |
| Cash Flow Coverage | 0.06 | 0.07 |
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