BUA333 - Financial
Management
Interpreting Cash Flow
Statements - Boeing (Solutions)
Boeing
develops and produces jet transports, military aircraft, and space and missile
systems through two industry segments:
Commercial
Aircraft and Defense and Space. Boeing has 227,000 employees and reported 1998
earnings of $2.1 billion on
revenues
of $59.9 billion. From Boeing’s web page you can access information about
products, employment opportunities,
Boeing
Realty Corp., Boeing Capital Corp., and financial performance. You can even
shop at the Boeing Store and buy an
airplane
or a T-shirt.
In
this exercise you get the opportunity to interpret Boeing’s 1998 cash flow
statement. To access the cash flow
statement go
to
Boeing’s web page, and click on the "Investor/Financial" link. From
the "Investor Relations" web page enter 1998 Annual
Report
in the scroll box and search. The cash flow statement is on page 55 of the 1998
annual report.
Click
here, to go directly to the cash flow statement!
Questions:
1a. What were Boeing’s operating, investing, and
financing cash flows in 1998?
Cash flows from operating activities? $2,367 million
Cash flows from investing activities? ($2,862) million
Cash flows from financing activities? ($1,778) million
b. In
which year(s) were Boeing’s operating cash flows sufficient to meet its
investment needs?
Boeing’s operating cash flows were sufficient to meet its
investment needs only in 1996.
c. In the year(s) that Boeing’s operating
cash flows were not sufficient to meet its investment needs how did Boeing fund
the
difference?
In both 1997 and 1998 Boeing funded the cash short fall by
drawing down its cash balances.
d. In which year did Boeing both issue and
repurchase common stock?
Boeing issued and repurchased shares in 1997.
e. Is Boeing increasing or decreasing its
reliance on external financing?
In all three years Boeing had negative financing cash flows.
Indicating that it is decreasing its reliance on external debt.
f. Does Boeing pay dividends?
Boeing pays dividends. You can tell from the cash flows from
financing activities.
2a.
What were the three largest sources of operating cash flow in 1998?
Adding back depreciation $1,517 million
Net Income $1,120 million
A decrease in inventory $618 million
b.
Explain why depreciation appears as a source of cash?
Depreciation appears as a source of cash because it is an
expense, which reduces net income, but it does not involve actual cash
expenditure.
c.
What were the three largest uses of operating cash flow in 1998?
A decrease in accounts payable and other liabilities $806
million
Other $479 million
A decrease in customer advances $324 million
d. What was Boeing’s net profit or loss in
1997?
Boeing had a net loss of $178 million in 1997.
e. What was Boeing’s net profit or loss in
1997?
Boeing had a net loss of $178 million in 1997.
f. In which year(s) did Boeing’s inventory
increase?
Increases in inventory appear as a use of cash. Boeing’s
inventory increased in 1997, and decreased in 1996 and 1998.
3a.
What was Boeings cash balance at the end of each year?
1996 - $5,469 million
1997 - $4,420 million
1998 - $2,183 million
b.
Does Boeing have a liquidity problem? Justify your answer. What other
information would you want to consider?
A falling cash balance does not mean Boeing has a liquidity
problem. On average Boeing is generating more than enough cash from operations to
fund on-going investment. In fact, it is paying dividends, reducing its
long-term debt, and repurchasing shares. Other information to consider includes
Boeing’s current and quick ratios, its debt to equity ratio, interest/debt
coverage ratios, and cash flow margin.
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