Glosario

GLOSARIO

1. Cash flow: is an accounting term that refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. Measurement of cash flow can be used

2. Cash flow statement: In financial accounting, is a financial statement that shows a company's incoming and outgoing money (sources and uses of cash) duringa time period (often monthly or quarterly).

The direct method for creating a cash flow statement includes major classes of gross cash receipts and payments. This method starts with revenues and expenses, while also including Current Assets as well as Current Liabilities. The cash flow for this example is +$40.00


|Transaction|In (Debit) |Out (Credit) |
|Incoming Loan |+$50.00 | |
|Sales (which were paid for in cash) |+$30.00 | |
|Materials| |-$10.00 |
|Labor | |-$10.00 |
|Purchased Capital | |-$10.00 |
|Loan Repayment| |-$5.00 |
|Taxes | |-$5.00 |
|Total cash flow..............................+$40.00 |

3. Free cash flow (FCF): is a cash flow available for distributionamong all the security holders of a company. They include equity holders, debt holders, preferred stock holders, convertibles holders, and so on. It is a cash that is left after financing all the NPV-positive projects.
FCF measures
-Operating cash flow (OCF) (this includes the reduction for interest),
-Less expenditures necessary to maintain assets (capital expenditures or "capex").
In symbols:[pic]

where

-OCBt is the firm's net operating profit after taxes during period t
-It is the firm's investment during period t including variation of working capital
Investment is simply the net increase (decrease) in the firm's capital, from the end of one period to the end of the next period:
[pic]

where Kt represents the firm's invested capital at the end of period t. Increasesin non-cash current assets may, or may not be deducted, depending on whether they are considered to be maintaining the status quo, or to be investments for growth.


4. Economic Value Added (EVA): is an estimate of true economic profit after making corrective adjustments to GAAP accounting, including deducting the opportunity cost of equity capital. EVA can be measured as Net OperatingProfit After Taxes(or NOPAT) less the money cost of capital. Money cost of capital refers to the amount of money rather than the proportional rate (cost of capital). The amortization of goodwill or capitalization of brand advertising and other similar adjustments are the translations that occur to Economic Profit to make it EVA.

5. A preferred stock: also known as a preferred share or simply apreferred, is a type of stock. It typically gives the owner the right to collect a fixed dividend from the firm when funds are available for distribution, with higher priority than regular stock owners, hence the 'preferred' name. However, it generally does not give the owners any voting power in the decisions of the firm. In that sense it has a lower ranking than regular stock, and hence is more...