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Following the acquisition of Kraft during Year 8, the Philip Morris Companies released its Year 8 statement of cash flows (indirect method).
PHILIP MORRIS COMPANIES, INC.
Statement of Cash Flows
For the Year Ended December 31, Year 8 ($ millions)
Cash flows from operating activities
Net income............................................................. $ 2,337
Add (deduct) adjustments to cash basis
Depreciation expense........................................ 654
Amortization of goodwill.................................... 125
Decrease in accounts receivable....................... 601
Decrease in inventories..................................... 2
Decrease in deferred taxes................................ (325)
Increase in accounts payable............................ 408
Increase in accrued liabilities............................ 1,041
Increase in income taxes payable...................... 362
Net cash flow from operating activities................. $ 5,205
Cash flows from investing activities
Increase in property, plant & equipment
(before depreciation)........................................... (980)
Increase in goodwill (before amortization)............. (783)
Decrease in investments....................................... 405
Acquisition of subsidiaryKraft *......................... (11,383)
Net cash used by investing activities.................... (12,741)
Cash flows from financing activities
Decrease in shortterm debt................................. (881)
Increase in longterm debt.................................... 9,929
Decrease in equity (repurchase) **........................ (540)
Dividends declared............................................... (941)
Increase in dividends payable............................... 47
Net cash provided by financing activities.............. 7,614
Net increase in cash............................................. $ 78
Instructions
Compute Philip Morriss free cash flow for Year 8. Discuss how free cash flow impacts the companys future earnings and financial condition.
Answer & Explanation
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