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Inditex

In: Business and Management

Submitted By gulatipavani
Words 800
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1. In 2010 and 2009 which individual line item consumed the most cash per the Statement of Cash Flows?

Looking at the Statement of Cash Flow for both years, we can see that the item that consumed the largest amount is Dividends, €751M and €662M for 2010 and 2009, respectively.

2. Where did the company obtain the cash to pay for the item identified in 1. above?

The cash distributed as the Dividends to share holders are obtained from the operations, and are listed as "Cash from Operations". A portion or Cash from Operations is spent on investing activities ("Capital Expenditure" in Inditex's Statement of Cash Flows) and yet another portion is spent on financing activities ("Cash Used in Financing Activities") and finally the remainder is listed as "Net Increase in Cash and Cash Equivalents". "Dividends" is listed within Cash Used in Financing Activities, so we can conclude that the cash to pay Dividends is obtained from operations.

3. Why is depreciation and amortization added back to the income before taxes when calculating cash from operations?

From an Income Statement perspective, whenever an item is depreciated/amortized, the amount of depreciation/amortization for the period is shown as an expense - which means the depreciation/amortization amount does have an impact on the Income Statement. With that said, we also know that from a Statement of Cash Flows perspective amortization/depreciation activity is a non-cash transaction, so effectively it should have no impact whatsoever on the Statement of Cash Flows for the same year. This is because cash was first reduced when asset was first acquired. Therefore, while arriving at the Cash from Operations from the Income Statement, we add the amount of Depreciation and Amortization to Income Before Taxes so that we can counter balance the effect on the Statement of Cash Flows.

4. Review the sub-section

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