Cash-Flow Statements, Investing Activities & the Naspers Case Study

"Sales is better than credit sales": faster cash-in improves liquidity and reduces collection risk.
Cash in the bank is superior to accounting (accrual) profit because only cash can:
- Pay suppliers, wages, taxes and debt service immediately.
- Fund expansion without additional borrowing.
Quality-of-earnings metric:
- \text{Quality of Earnings} = \frac{\text{Operating Cash Flow}}{\text{Accounting Profit}} \times 100\%
- A high percentage (>100 %) signals earnings are largely backed by cash; a low percentage suggests heavy reliance on non-cash accruals.

Three statutory sections (always appear in this order):
1. Cash Flow From Operating Activities (CFO) – day-to-day core trading.
2. Cash Flow From Investing Activities (CFI) – long-term asset purchases/sales & acquisition/disposal of subsidiaries.
3. Cash Flow From Financing Activities (CFF) – transactions with capital providers (debt & equity).
Mathematical reconciliation:
- \text{Net Cash Flow}=\text{CFO}+\text{CFI}+\text{CFF}
- \text{Closing Bank Balance}=\text{Opening Bank Balance}+\text{Net Cash Flow}
- Always verify closing cash on the balance-sheet equals the bank figure on the cash-flow statement; if not, the accounts are wrong.

Diagnostic questions to ask when browsing CFI:
- How much was spent on Property, Plant & Equipment (PPE)?
  • Expansionary CapEx (new initiatives, capacity growth) vs. replacement CapEx (maintaining existing assets).
- Are there major inflows (asset disposals)?
  • Which property, plant or business unit was sold and why?
- Any cash paid to acquire new subsidiaries or investments?
  • Example: Woolworths’ ill-fated acquisition of David Jones in Australia.
Perspective for future CEOs: you may not see operational minutiae, but large CFI line items (often billions) reveal strategic moves.

Tracks sources and uses of capital:
- Inflows: new bank loans, bond issues, equity issues.
- Outflows: debt principal repayment, share buy-backs, dividends.
Net cash outflow in CFF can be healthy when the firm intentionally deleverages:
- Example: receive 1\;\text{bn} in new loans but repay 2\;\text{bn} → net outflow of 1\;\text{bn} and a drop in net debt.
Typical pattern: strong CFO → management chooses to repay debt → CFF shows large outflow.

Post-audit, JSE-listed CEOs present results; instead of a static cash-flow table they frequently show a waterfall graph:
- Starts with opening cash, then sequentially stacks "uses" (negative bars) and "sources" (positive bars) to arrive at closing cash.
- Instantly tells the story "Where did the cash go?".
Always compare current-year waterfall to the prior year and to peers.

Golden rule: the value of any asset, project or company is its ability to generate future cash.
Classic comparison exercise (to be modelled tomorrow):
1. Lump-sum deposit earning 5 % p.a. for 5 years.
2. Equity investment paying dividends for 5 years plus sale proceeds.
3. Income-producing asset (e.g., rental property or vehicle) + disposal value.
Technique:
- Forecast annual cash flows.
- Discount to present value (PV): \text{PV}=\sum{t=1}^{n}\frac{\text{CF}t}{(1+r)^t}
- Choose the option with the highest PV.
This discounted-cash-flow (DCF) mindset underpins investment banking, private equity and corporate valuations.

Definition: \text{Market Cap}=N{\text{shares}}\times P{\text{share}}
Illustrative example: 1\,000\,000 shares × R1 = R1\,000\,000 company value.
Two drivers:
1. Share price momentum (earnings growth, sentiment).
2. Share count (issuances or buy-backs).

AngloGold Ashanti ≈ 24\;\text{bn} (USD) market cap – ranked #2.
Largest ≈ 50\;\text{bn} (USD) – identified in class as Naspers / Prosus group.

Origin: Afrikaans newspaper publisher; reinvented into a tech & investment powerhouse.
Transformational bet: $32 million stake in Tencent → now worth ~$600 billion (USD).
Corporate structure:
- SA-listed Naspers (legacy media + local ops).
- Dutch-listed Prosus (global tech investments).
CEO: Brazilian entrepreneur who built the "Uber Eats of South America" (iFood).
Active strategy: acquire on-demand & AI-driven platforms (e.g., Just Eat Takeaway in Europe).
Cash-flow fingerprint:
- Modest positive CFO from Media24, News24, M-Net, etc.
- CFI dominates – multibillion-rand swings from buying & selling stakes.
Share price perspective:
- ≈ R7,000 per share today vs. ~R20 decades ago.
Compensation sidebar: CEO earns ≈ R100+ million p.a.; dwarfed by shareholder wealth creation.

Relentless focus on finding "the next big thing" (AI, tech platforms).
Entrepreneurship pathway: technical founders (engineering, science) create the idea; commerce graduates structure, finance and scale it.
Importance of rigorous financial literacy for future CEOs:
- Question every large cash-flow line.
- Verify statement integrity (bank balance cross-check).
Ethical dimension: chasing investment returns must still consider stakeholder impact (not explicitly covered but implicit).

Prepare a full cash-flow statement from scratch and reconcile it.
Identify whether CapEx is growth or maintenance.
Distinguish sources/uses in financing.
Build and interpret a waterfall chart.
Compute market cap and analyse share drivers.
Perform a basic DCF, selecting appropriate discount rates (risk-adjusted).
Read analyst presentations and annual reports critically; track cash not just profit.

Tomorrow: hands-on discounted cash-flow modelling for the three investment alternatives mentioned above.