the statement of cash flows, as part of their Financial Statement Presentation project. However, they shelved theproject in order to focus on other priorities. Hopefully, if the boards resume deliberations, they will be able to resolvesome of these issues. In the meantime, we recommend:
Promoting more consistency in application and greater transparency as to how amounts are classified in thestatement via less optionality and more interpretive guidance,
Allowing for the bifurcation of singular cash flows between categories,
Allowing for the judicious use of constructive receipt and disbursement or requiring that noncash activity beincluded within the statement itself, and
Potentially looking to the nature of the original noncash transaction to determine the classification of subsequentcash flows.
Standard & Poor's Approach To Analyzing The Statement Of Cash Flows
Before addressing specific problem areas, it might be helpful to recap how Standard & Poor's generally uses theinformation in an issuer's statement of cash flows to derive the various cash flow metrics we employ in corporateratings. We begin to measure cash flows using cash flow from operations (CFO). By deducting capital expendituresfrom CFO, we arrive at free operating cash flow (FOCF), which we use as a proxy of a company's cash generated fromcore operations. Next, we calculate the company's discretionary cash flow (DCF) by subtracting cash dividends fromFOCF. DCF is a measure of cash flows after consideration of all nondiscretionary cash flows. Finally, to arrive at cashflow available for debt repayment, we subtract from or add to DCF: cash used for acquisitions, received from assetdisposals, received from equity issuances, used for share repurchases, and other miscellaneous sources and uses of cash. This metric represents the extent to which a company's cash flow from all nonfinancing sources has beensufficient to cover all internal needs. (See Appendix C to "Corporate Methodology," Nov. 19, 2013, for furtherdiscussion of how we use these metrics, and table 1.)
Cash Flow Summary: XYZ Corp.
Cash flow from operations 11,700- Capital expenditures (3,200)Free operating cash flow 8,500- Cash dividends (4,500)Discretionary cash flow 4,000- Acquisitions (3,700)+ Asset disposals 400+ Equity issuances 200- Share repurchases (100)+/- Other sources (uses) of cash 600Cash flow available for debt repayment $1,400
We then apply our analytical adjustments to these subtotals for items such as pensions and leases to arrive at the
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The Statement Of Cash Flows: Comparing The Incomparable