| Course | MT482 Financial Statement Analysis |
|---|---|
| Unit | Unit 7 |
| Paper type | Cash flow analysis |
| Length | About 840 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT482 Unit 7
Profit Followed Into Cash: An MT482 Unit 7 Cash Flow Analysis Testing a Billboard Company's Earnings Three Ways
[Student Name]
Purdue University Global
MT482: Financial Statement Analysis
Unit 7 Cash Flow Analysis
[Instructor Name]
[Date]
Wabash Outdoor and every figure are composite; the sources cited are real.
Why Test Earnings Against Cash
Net income depends on accounting choices: depreciation lives, accrual estimates, the timing of gains. Cash depends on fewer of them. Dechow (1994) found that earnings generally measure performance better than cash flow over short periods, because accruals smooth timing problems, but that the gap between the two is where analysts should look for problems. This analysis follows Wabash Outdoor's profit into operating cash, free cash and dividends for 2023 through 2025.
Test One: Operating Cash Against Net Income
Operating cash flow rose from $97.5 million in 2023 to $104.2 million in 2024 and $109.53 million in 2025. Net income rose faster, from about $30.2 million to $33.7 million and then $50.73 million. The ratio of operating cash to net income fell from 3.23 to 3.09 to 2.16.
A falling ratio can signal that earnings are outrunning cash, a warning sign. Here the explanation is benign. The 2025 gap between cash and income comes mostly from $57.3 million of depreciation and amortization, the charge for structures built in earlier years. And part of 2025's income growth came from selling old structures at a $4.6 million profit, cash that appears in investing cash rather than operating cash. Without the gain, the ratio would be about 2.32.
A related measure, the accrual ratio, divides net income minus operating cash by average assets. For Wabash in 2025 it is about negative 3.3 percent: operating cash exceeded income by a wide margin. Sloan (1996) found that companies whose earnings are made up largely of accruals tend to see earnings fall later, while those with low or negative accruals do not, so this is a reassuring result.
Test Two: Free Cash Flow
Operating cash is not all available to shareholders, because billboards wear out and must be maintained. Capital spending in 2025 was $38.0 million: $14.6 million to maintain existing structures and $23.4 million to convert bulletins to digital faces. Subtracting all of it leaves free cash flow of $71.53 million. Subtracting only maintenance spending, the cost of standing still, leaves $94.93 million.
Dividends of $26.4 million are covered 2.71 times by free cash flow and about 3.6 times by cash after maintenance only. The dividend is safe even if growth spending continues at this year's pace for several more years.
The dividend takes about a third of free cash flow, leaving room to repay debt and convert more faces.
The Trend in Spending
Over the three years, growth spending rose as Wabash accelerated digital conversions, from about $11 million in 2023 to $23.4 million in 2025, while maintenance spending stayed near $14 million to $15 million a year. That pattern fits the strategy described in earlier units and explains why free cash flow grew more slowly than operating cash. If conversions slow once the best sites are done, free cash flow should rise sharply, which makes the dividend's coverage likely to improve rather than weaken.
Test Three: Operating Cash Against EBITDA
Many analysts treat EBITDA as if it were cash, but it ignores interest, taxes and working capital. Wabash's operating cash equals 67.0 percent of its EBITDA. The difference is mainly interest of $44.1 million and cash taxes of about $11.92 million, with $2.3 million absorbed by working capital, partly offset by non-cash charges added back. For a borrower, the gap is a reminder that a company valued at a multiple of EBITDA must pay its interest bill before any of that EBITDA reaches shareholders.
The Lease Question
Under current United States accounting, payments on operating leases, Wabash's ground rent, run through operating cash flow. Some analysts treat leases as debt and move the principal portion of lease payments to financing, which raises operating cash and lowers free cash flow after lease principal. That choice changes the ratios but not the conclusion: cash from the business comfortably exceeds both its income and its dividend.
What the Three Tests Show
All three tests point the same way. Wabash's earnings are backed by cash, its free cash flow covers its dividend with room to spare and the gap between profit and cash is explained by depreciation and a single identifiable gain. The weaker point is the size of the interest bill, which consumes a large share of EBITDA and leaves the company exposed if rates rise. Fridson and Alvarez (2022) suggest that free cash flow after maintenance spending is the best single measure of what a business can return to its owners, and on that measure Wabash is strong.
Limits
The split between maintenance and growth spending comes from management's disclosure and could be optimistic; if maintenance needs are higher, free cash flow after maintenance would be lower. Three years is a short period for judging earnings quality.
References
Dechow, P. M. (1994). Accounting earnings and cash flows as measures of firm performance: The role of accounting accruals. Journal of Accounting and Economics, 18(1), 3-42. https://doi.org/10.1016/0165-4101(94)90016-7
Fridson, M. S., & Alvarez, F. (2022). Financial statement analysis: A practitioner's guide (5th ed.). Wiley.
Sloan, R. G. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review, 71(3), 289-315.
MT482 Unit 7 instructions, in plain terms
The Unit 7 assignment in MT482 asks you to judge earnings quality by comparing profit with cash. Use at least three years. Compare operating cash flow with net income and explain any change in the ratio. Compute an accrual measure, such as net income minus operating cash divided by average assets. Separate maintenance from growth capital spending where the company discloses it, and compute free cash flow on both bases. Test dividend coverage. Compare operating cash with EBITDA to show what interest, taxes and working capital absorb. Address accounting choices that change the measures, such as how lease payments are classified. Close with what the tests show together and their limits. About four pages with a three-year table is common, and figures should tie to the statement linkage built in the earlier exercise.
How the MT 482 Unit 7 example is put together
The analysis opens with Dechow on why the gap between earnings and cash deserves attention. Test one compares operating cash with net income over three years and explains the falling ratio by depreciation and a one-time gain, then computes the accrual ratio with Sloan on what low accruals predict. Test two computes free cash flow after all capital spending and after maintenance only, and checks dividend coverage, under a highlighted line that the dividend takes about a third of free cash flow. A section traces growth spending rising with conversions. Test three reconciles operating cash with EBITDA through interest, taxes and working capital. A section on lease classification shows the conclusion holds either way. The summary cites Fridson and Alvarez on free cash flow after maintenance, and the limits question management's maintenance split.
Where the points sit in the MT482 Unit 7 rubric
Cash flow analyses are graded on whether the tests are computed correctly and read in context. Instructors credit three-year comparisons that explain changes rather than only report them. An accrual measure with a correct sign interpretation is a frequent marking point. Separating maintenance from growth spending shows understanding of what free cash flow is for. Dividend coverage on more than one basis shows care. Reconciling operating cash with EBITDA demonstrates that the student knows EBITDA is not cash. Addressing lease classification shows awareness of current accounting rules. A conclusion that weighs all tests together, and limits that question management's figures, show judgment. Research on accruals should support the interpretation.
Common MT482 Unit 7 mistakes, and how to avoid them
The most frequent Unit 7 weakness is reporting operating cash flow and net income without explaining why they differ. Another is reading a falling cash-to-income ratio as a warning without checking whether depreciation or a one-time gain explains it. Students often subtract all capital spending without separating growth, which can make a growing company look weak. EBITDA is commonly treated as cash. Lease payments are rarely discussed. Before submitting, list every item that separates net income from operating cash and make sure each is explained. Then compute free cash flow both ways, after all spending and after maintenance only, and say which better answers the question you are asking.
Get an MT482 Unit 7 example written to your instructions
Attach the last three cash flow statements your company filed, or name it, and include the Unit 7 prompt and rubric. Expect a decomposition of the gap between profit and operating cash, capital spending split into maintenance and growth, and one named signal to watch. The opening one carries no bill and normally lands inside 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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MT482 Unit 7 questions, answered
How do I split maintenance from growth capital spending?
Many companies disclose the split in management's discussion, often describing growth spending as new builds or conversions. When they do not, a common proxy is depreciation expense, on the view that maintaining the asset base costs about what it wears out. The sample uses the company's disclosure, 14.6 and 23.4 million, and says where the figures came from.
Why is a negative accrual ratio good?
It means operating cash exceeded net income, so reported profit rests on cash already collected rather than on estimates of future receipts. Large positive accruals, profit far above cash, are a classic warning sign in earnings quality research. The sample's negative 3.27 percent is typical of asset-heavy businesses carrying large depreciation charges.
Are lease payments included in operating cash flow?
For operating leases under current US accounting, yes; the payments run through operating activities. Finance lease payments split between operating, for interest, and financing, for principal. The sample's site leases are operating leases, so free cash flow is already stated after rent, and subtracting lease payments again would double-count them.
Where can I find a free MT482 Unit 7 sample paper?
The complete MT482 Unit 7 analysis appears here, testing a composite billboard company's earnings against operating cash, free cash and dividends over three years.
How well is the dividend covered in the MT482 Unit 7 sample?
Free cash flow of $71.53 million covers $26.4 million of dividends 2.71 times, and cash after maintenance spending covers them about 3.6 times.