What does the BT pic cash flow statement tell us?
This summarized version is aimed at helping you understand the sources and uses of cash, ie the big picture. Owing to accounting standards and possible specific legal disclosure requirements of the cash flow statements (as with the balance sheet and income statement, which often have to show immaterial figures), as you gain confidence in understanding the key headings and numbers you should be able to ignore small items and concentrate on the big picture. The full cash flow is shown in Table 8.14, and immediately you will see the addition of all the detail. Some of the figures are not small and looking at them may well lead to questions. In this case, the very large 8,856 million received from disposal of current financial assets is almost matched by the purchase of current financial assets, the net effect being a negligible cash outflow. You would certainly want to know what was happening. Financing is very sophisticated and the treasury functions of businesses may contribute to (or take from) results as much as the operating businesses. Further consideration of this is covered in Chapter 12 on financing strategies.
TABLE 8.13 BT pic - cash and cash equivalents
23. Cash and cash equivalents
The group has cross undertaking guarantee facilities across certain bank accounts which allow a legally enforceable right of set-off of the relevant cash and overdraft balances on bank accounts included within each scheme.
The group's cash at bank included restricted cash of £91m (2011/12: £76m), of which £87m (2011/12: £68m) were held in countries in which prior approval is required to transfer funds abroad. Such funds can be used by the group within a reasonable period of time if it complies with these requirements. The remaining balance of £4m (2011/12: £8m) was held in escrow accounts.
SOURCE: BT (2013)
TABLE 8.14 BT pic - full group cash flow statement
a Includes pension deficit payments of £325m (2011/12: £2,000m, 2010/11: £l,030m). b Primarily consists of Investment In and redemption of amounts held In liquidity funds. C The repayment of borrowings Includes the Impact of hedging.
SOURCE: BT (2013)
Below are extracts from the Group Financial Performance section of the 2013 accounts.
Our cash generation is strong, with normalised free cash flow of £2.3bn and net debt of £7.8bn, down £1.3bn. The cash generation of our business has put us in a good liquidity and funding position.
Free cash flow
We measure our performance using normalised free cash flow. Normalised free cash flow is an important measure of our financial performance. It represents the cash we generate from our operations after capital expenditure and finance costs. It excludes the impact of specific items, purchases of telecommunications licences, pension deficit payments and the related cash tax benefits. This is consistent with how management measures our financial performance and gives us a meaningful way to analyse the free cash flow generated by the group.
Our cash generation and financial strength have enabled us to progress our financial objectives. We have reduced ournetdebtby£1,285mwhilst supporting our pension fund, paying progressive dividends to our shareholders and making strategic investments for the future of our business.
The notion of using 'normalized' cash flows makes sense in that one-offs are excluded, but of course they must not be ignored!