Change in Cashflow - vs- balance sheet
Hi everyone, I was hoping you can explain me the following:
I looked into Ford's (F) Financial Statements (Source: Morningstar) and am a bit confused about the cashflow statement. I'm sure that is an easy question for you. For example:
According to the balance sheet the "Inventory" increased from 7866 to 8319 (2014-2015). However, the operating cashflow states an increase in inventory (decrease cashflow) of 1155 in 2015. I was expecting a increase of 453 (8319-7866). Can you explain me why? Did I sleep through my account class?
Thank you!!!
They bought $1155 worth of inventory over the course of the period (hence the cash outfolow on the CFS, sold some, and are left with $453 on the financial statement date, hence the increase on the balance sheet.
*Possible solution, not saying it actually happened
They bought inventory for $1155 (cash outflow) and sold inventory after in generated revenue (net income), correct? that would make sense.
However, how do you explain the change in accounts receivable? According to the balance sheet, it increased by $9,580 but the cash flow statements list only $3563 (2015). How is that? You can find the sheet in my link
On the date the financial statements were prepared, the company had $9,580 in A/R.
Over the course of the period, the company collected $3,563 of its receivables.
You need to realize that the Balance Sheet is just the balances in accounts on the date of the financial statements, whereas the Cash Flow statement is over the course of the period. You could increase your receivables by fifty-million dollars, but if you only collect seven cents, your cash flow statement will only show seven cents.
wouldn't an increase in AR reduce the cashflow (reduces the net income in the CF calculation)? In the example I mentioned you see the company increased its AR from $81,111 (2014) to $90,691 (2015). I would have expected a reduction of $9580 in operating cashflow. However, I only see -$3563.
Dude go read a book about what a cash flow statement is
very helpful comment "dude". The book reflects my last statement.
I don't think he is trying to be harsh, but let's think about this from a logical standpoint.
You are looking at Ford, a domestic vehicle manufacturer. Domestic vehicle sales have been on the decline for some and are only starting to recover over the past few years.
The "inventory" listed on the balance sheet is largely inflated due to dealer financing. Ford finances the vehicles that they are manufacturing to the dealers so that they are able to have "inventory" without the huge outlay to buy the vehicles. Sometimes these vehicles don't sell in the time period project, or at all for that matter, and thus Ford as a company has to then write off this bad debt, if you will.
Like I said, this is all information you can find within the 10-K. I understand that a 100+ SEC filing can be a bit daunting, but take some time and comb through it. You'll learn a ton about the business, how they operate and the special accounting provisions that they employ to get to the numbers in the filings.
Also, consider the fact that companies are able to restate values, so if you are looking at statements from 2017, the numbers from 2015 may be restated to reflect tax provisions, writeoffs, etc.
Sunshine is just trying to help. Appreciate it and do a little research. You won't last in this industry if you don't learn to problem solve on your own.
If you have any other questions, feel free to PM me, happy to help.
Another possible explanation is a change in value. Remember that the balance sheet is a snapshot at any given time whereas the cash flow statement is inflows and outflows over the course of a given time period.
Check the notes and see if there are more details regarding the fair value of inventory, disposal of inventory, etc. Often times if you look at the notes after the financial statements you'll find more detailed breakdowns of these line items that explain what is included/excluded and any other anomalies.
Hope that helps provide additional clarity.
Good point about the change in value.
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