7-7 modifying accounting data for managerial deciaions

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10edition financial management

managerial performance

managers ability to generate operating income (EBIT) with operating assets under their control

operating assets

assets necessary to operate the business

nonoperating assets

cash and short term investmetns

operating current assets

inventory

long term operating assets

plant and equipment

current liabilities

accrued wages, accounts payable, accrued taxes

NOWC

the working capital acquired with investor supplied funds. operating current assets minus operating current liabilities

NOPAT

better measurement for comparing managers performance, it is the amount of profit a company would generate if it had no debt and held no financial assets

FCF

the cash actually available for distribution to investors after the company has made all the investments in fixed assets and working capital necessary to sustain ongoing operations

gross investment in operating cash flow

net investments in operating capital plus depreciation

operating cash flow

NOPAT + Depreciation

FCF

pay interest to debt holders, repay debtholders, pay dividends to shareholders, repurchase stock from shareholders, buy short term investments or other nonoperating assets

FCF corporate

cash flow available for distribution to investors, the value of a firm primarily depends on its expected future FCF

return on investment capital

a way to determine whether growth is profitable is by examining it (nopat/operating capital)

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