In this series of articles looking at financial statements, we are going to see if we can delve into AstraZeneca (LSE: AZN) (NYSE: AZN.US)’s cash flow statement for the year ended 31 December 2012. If you are new to investing, or are just baffled by some of the terms that make up a cash flow statement, then read on.
Again, I will start by noting the cash flow statement is only one of three main financial statements. Both the balance sheet and income statement are as important, and should be viewed in conjunction to gain the full picture.
The cash flow statement is very useful in gaining a real understanding of what has actually happened during the year. Unlike the income statement, which is ruled by accrual accounting, and the balance sheet, which is a mere snapshot of one point in time, the cash flow statement gives a perspective on how AstraZeneca has performed in hard cash. There are far less hiding places to be had when reporting this one.
Cash is king
The format is always the same with cash flow statements. Cash from operating activities come first, then investing activities and finally financing activities. ‘Operating activities’ shows the performance during the year which in AstraZeneca’s case is a disappointing fall of 25% to $9.5bn before interest and tax. The main driver is the profit fall rather than any particular cash movement considerations, though.
Raid the savings to boost that pipeline
‘Investing activities’ includes two lines of note. The movement of short-term investments and fixed deposits produced a cash inflow of $3.6bn. Note 10 reveals that fixed deposits were realised to the value of $3.9bn with a mere $46m remaining. A significant reduction in that investment base. Contrary to this, the purchase of intangible assets led to a cash outflow of $3.9bn. Note 9 gives us the detail concerning the diabetes alliance collaboration with BMS amounting to $3.7bn.
Finally, in financing activities, we can see quite a bit of action with $3.7bn paid out in dividends and a further $2.6bn for the repurchase of shares. The repayment of existing loans was offset by the uptake of new loans, both just under $2bn. The overall cash inflow after everything has been taken into account is just $166m. The dividends are at least covered almost 2 times by cash inflow from operating activities after tax and there is still a healthy $7.6bn balance at the end of the year.
Hopefully that whistle-stop tour was helpful although, as ever, there are many more terms that could be cleared up as well.
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> Barry owns shares in AstraZeneca.
