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Dell cash provided by operating activities, free cash flow

See attached files.

Case 7-1
Analysis of Cash Flows

Refer to the annual report of Dell in Appendix A:

Required:
a. Explain how the following items create differences between Dell's earnings from continuing operations and its net cash provided by operating activities:
(1) Depreciation and amortization
(2) Change in deferred taxes
(3) Decrease in receivables
(4) Decrease in inventories
b. Explain why net income is much less than cash from operations in 2005.
c. Calculate Dell's free cash flows for each of the past three years.
d. How has Dell used its free cash flows during the past three years?
e. How much cash has Dell returned to shareholders during each of the past three years and in total?

ANSWER CHECK: (c) 2005=$4,785

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Solution Preview

a. Explain how the following items create differences between Dell's earnings from continuing operations and its net cash provided by operating activities:

(1) Depreciation and amortization

Depreciation is an expense that reduces net income but no check is written so it never reduces operating cash flows.

(2) Change in deferred taxes

A change in deferred taxes results when the tax expense includes in the computation of net income differs from the check written to the taxing authority (which is part of the computation of operating cash flows).

(3) Decrease in receivables

Receivables decrease when the collections (which are included in operating cash flows) are more than the credit billings (revenue) which are ...

Solution Summary

Your tutorial is 403 words and includes discussion of why the reconciling items appear between net income and operating cash flows, computation of free cash flows, and discussion of how free cash flow was used using the 2005, 2004 and 2003 years for Dell Inc.

$2.19