Hertz case
1) Hertz makes five adjustments (ignoring ‘Other adjustments’) to net income before including the changes in operating assets and liabilities. List each of these five items and explain why each of these items is added (subtracted) from net income to calculate Net Cash Provided by Operating Activities.
Answer:
The five adjustments to net income before including the changes in operating assets and liabilities in the consolidated statement of cash flows of Hertz Global Holdings, Inc. are listed as follows;
Explanation:
Since the net income reported in the statement of cash flows is transferred from the profit and loss account which is the difference between revenue and expenditures all of two types;
(a) Those expenditures that relate to transactions in which cash is involved and are actually paid from cash and cash equivalent or are directly credited from the company’s bank account(s).
(b) Those expenditures where no cash is involved and hence are deemed as non-cash expense/items. Such expenses do not reflect any change on the cash held in bank. However, such expenses do have an effect on the income as follows;
Depreciation on revenue earning equipment and property and equipment is regarded as a non-cash item since depreciation is an expense which is being incurred against the usage of equipment due to wear and tear thereby declining its total value over its useful life and hence has nothing to do with any change in the cash. Similarly, the amortization of other intangible assets is also a non-cash item as it is decline in cost of intangible over its useful life or in other words utilization of economic benefits being derived from such asset of that particular amount and hence has no effect on the cash.
As mentioned above, such expenses are also subtracted from the revenue in order to reach at a loss of ($ ‘000 111,343). In the statement of cash flows all such expenses are added back to such loss to calculate the income/ (loss) which
Answer:
The five adjustments to net income before including the changes in operating assets and liabilities in the consolidated statement of cash flows of Hertz Global Holdings, Inc. are listed as follows;
Explanation:
Since the net income reported in the statement of cash flows is transferred from the profit and loss account which is the difference between revenue and expenditures all of two types;
(a) Those expenditures that relate to transactions in which cash is involved and are actually paid from cash and cash equivalent or are directly credited from the company’s bank account(s).
(b) Those expenditures where no cash is involved and hence are deemed as non-cash expense/items. Such expenses do not reflect any change on the cash held in bank. However, such expenses do have an effect on the income as follows;
Depreciation on revenue earning equipment and property and equipment is regarded as a non-cash item since depreciation is an expense which is being incurred against the usage of equipment due to wear and tear thereby declining its total value over its useful life and hence has nothing to do with any change in the cash. Similarly, the amortization of other intangible assets is also a non-cash item as it is decline in cost of intangible over its useful life or in other words utilization of economic benefits being derived from such asset of that particular amount and hence has no effect on the cash.
As mentioned above, such expenses are also subtracted from the revenue in order to reach at a loss of ($ ‘000 111,343). In the statement of cash flows all such expenses are added back to such loss to calculate the income/ (loss) which