Chapter 5 - Cash Flow Statement

Rolls-Royce expects flat year

Summary:
Rolls-Royce continues to expect underlying revenue and profits level with 2009 despite a modest cash flow in 2010. Chief executive Sir John Rose says, in this AGM and interim management statement: 'Whilst we are seeing signs of stabilization and modest improvement in some parts of the global economy, to which our businesses are exposed, the overall environment remains challenging.” As Rolls-Royce continues to produce energy machines and systems, additional pressure has been placed on some of their customers by the recent disruption to the European aviation industry as a result of the volcanic eruptions in Iceland.

Cash Inflow/Outflow:
Ideally, during the business cycle, companies will have more money flowing in than flowing out. This will allow them to build up cash balances with which to plug cash flow gaps, seek expansion and reassure lenders and investors about the health of their business. With Rolls-Royce’s inconsistent cash flows, they have a hard time balancing their cash balance a hard time to reassure investors. Some example of cash inflow include: Payment for goods or services from your customers, receipt of a bank loan, interest on savings and investments, and shareholder investments. Some examples of cash outflow include: purchase of stock, raw materials or tools, wages, rents and daily operating expenses, purchase of fixed assets - PCs, machinery, office furniture, etc. , loan repayments, dividend payments, income tax, corporation tax, VAT and other taxes, and reduced overdraft facilities.

Reflection:
Rolls-Royce comments on their trading performance in the year to date has been consistent with their expectations and their current view of the full year performance remains in line with that at the time of their preliminary results in February 2010. Although their industry has been hit hard with unfortunate events such as natural disasters, I believe that the company’s future should be quite good because of new aviation technologies and the demand of new systems and mechanics. “As a result, we continue to expect underlying revenue, underlying profits and average net cash balances to be broadly similar to those achieved in 2009 despite a modest cash outflow in 2010”, Chief executive Sir John Rose concludes.