4.2 Cash Flow Calculation

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From the course by Yonsei University

Valuation for Startups Using Multiple Approach

32 ratings

Yonsei University

Valuation for Startups Using Multiple Approach

32 ratings

Course 2 of 5 in the Specialization Valuation and Financial Analysis For Startups

In addition to discounted cash flow method, multiple method is one of the most popular methods of firm valuation. PER is often used among financial professionals to make a quick-and-dirty estimate of a firm value. In this course, you are going to learn the concept and usage of PER, PBR and PSR. In addition to these basic multiple ratios, you are going to learn how to make an estimate of enterprise value and founder’s ownership before and after additional funding. Startups require a number of financings before IPO. After taking this course, you are going to be able to answer questions such as What the price per share should be given the startup’s estimate of earnings in the future; How many shares the founder should give up to raise additional capital; and so on? In the discounted cash flow method and multiple method, you are always given earnings or cash flows to make estimate of firm value. In this course, you are also going to learn how to generate cash flows or earnings from the financial statements. After taking this course, you will be able to understand the meaning of financial statements such as balance sheet, income statement and cash flow calculation.

From the lesson

Cash Flow

In this module, you will learn cash flow identity which consists of cash flow to assets and cash flow to creditors and stockholders. Furthermore, you are able to calculate cash flow. Basically, this module is strongly related to module 3, financial statements. Students are encouraged to review all contents in module 3. Lastly, wrap-up review lecture are provided.

4.1 Cash Flow7:38

4.2 Cash Flow Calculation5:35

Meet the Instructors

Hyun Han Shin
Professor
School of Business

Hi everybody.

In the previous class, we learned how to make balance sheet and income statement.

In this class, we are going to learn how to calculate cash flow.

Before we calculate operating cash flow, let's move balance sheet and

income statement in the position shown in the slide.

That is balance sheet is in column E and income statement is in column F.

Next, let us start with operating cash flow.

Operating cash flow is earnings before interest and

taxes plus deppreciation minus taxes.

Earnings before interest and

taxes is calculated in an income statement and it is in cell M6.

Depreciation is in cell M5.

Taxes are in cell M9 then operating cash flow is $1,840.

Next, let's work on net capital spending.

First, ending net fixed assets are in cell C8, or cell G5.

Here we are using cell C8.

Beginning, net fixed assets are in cell E8 or F5.

Depreciation is in cell M5.

Net capital spending is ending net fixed assets minus

beginning net fixed assets, plus depreciation.

So, it is $1,100.

Next lets calculate change in net working capital.

First, ending net working capital is current assets

in 2015 minus current liabilities in 2015.

So, it is $1,250.

Beginning net working capital is current assets in

2014 minus current liabilities in 2014.

So, it is $1,200.

Change in net working capital is ending net working capital

minus beginning net working capital.

So, it is $50.

Next, move your completed operating cash flow statement

to cell A14 and start calculating cash flow from assets.

As you learned, cash flow from assets is operating cash flow

minus net capital spending minus change in net working capital.

First operating cash flow is in cell

B19, so it is $1,840.

Net capital spending is in cell B24 and it is 1,100.

Change in net working capital is in cell B28 and it is $50.

Cash flow from assets is 1,840

minus 1,100 minus 50 is equal to $690.

Next, let's calculate cash flow to creditors and stock holders.

First interest paid is in cell M7, and it is $160.

Net new borrowing is long-term debt in 2015

minus long-term debt in 2014 and it is minus $500.

That is, Yonsei Corporation paid off $500 of long-term debt,

so its long-term debt has been reduced by $500.

So, cash flow to creditors are sum of interest pay and long term debt pay.

That long term debt pay is negative net new borrowing.

So, cash flow to creditors is interest paid

minus net new borrowing and it is $660.

Next, cash flow to stockholders is dividends

paid minus net new equity raised.

Dividends paid is in cell C6.

Net new equity raised is equity in 2015

minus equity in 2014 minus addition

to retained earnings in 2015.

So, it is $180.

Cash flow to stockholder is then $210

minus $180, it is equal to $30.

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