Mitsui Oil Exploration Company: Generating Cash Flow Information
This case concerns the development and use of cash flow information by a Japanese oil and gas exploration company. Faced with the opportunity of participating in a significant exploration project in the Malay Basin off the coast of Vietnam, the Mitsui Oil Exploration Company (MOECO) must raise ¥200 billion for its share of the exploration budget. MOECO executives believe that 30% of the investment can be raised from internal operations. Students are asked to prepare MOECO's statement of cash flows and then to calculate the company's discretionary cash flow to validate the 30% assumption.
This case is designed to assist students in the development of cash flow information that can be used for decision-making purposes. The appendix to the case provides a straightforward methodology for the preparation of an indirect method statement of cash flows. Using the approach described in the appendix, in conjunction with the data provided in the exhibits to the case, students develop cash flow data for a hypothetical firm and then address the following issues:
- How much is the company's discretionary cash flow?
- Is the discretionary cash flow sufficient to enable the company to undertake a significant capital investment program?