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Hertz Financial Analysis

Adjustments made to calculate Net Cash Provided by Operating Activities

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 briefly explain why each of these items is added (subtracted) from net income to calculate Net Cash
Provided by Operating Activities.

2) Did receivables increase or decrease from the end of 2011 to the end of 2012? Did accrued liabilities increase or decrease from the end of 2011 to the end of 2012?

3) How much cash did Hertz pay out to investors in the form of dividends and/or share repurchases in 2012? (Ignore other financing activities.)

4) What is the largest asset reported on Hertz’s balance sheet? Notice that Hertz does not separately classify assets as ‘current’ and ‘long-term’. Do you think the largest asset is a current or long-term asset? Why?

5) Notice that the largest cash outflow (inflow) relates to rental car acquisition (disposal). 

a. In which section of the cash flow statement are these cash flows reported?

b. Select balance sheet and cash flow information for Coinstar (parent of Redbox), Aaron’s,and Men’s Wearhouse is attached. Coinstar rents DVDs (called content library), Aaron’s rents furniture (called lease merchandise), and Men’s Wearhouse rents tuxedos. In which section of the cash flow statement does each of these companies report the cash outflows related to obtaining their rental products?

c. Do you think Hertz reports the cash flows related to the acquisition and disposal of rental cars in the appropriate section? If yes, explain why. If no, indicate which section you would report these cash flows and explain why.

6) In 2014, Hertz announced that there were material errors in its 2011–2013 financial statements.


The full extent of the errors has not yet been determined and the company has not filed any quarterly financial statements for 2014. So far, we know of two accounting issues:


(i) Hertz under-depreciated the self-service kiosks and


(ii) Hertz underestimated the amount of bad debt expense related to receivables from customers for damaged rental vehicles.


What effect do each of these errors have on 2012 operating cash flows?

Hertz is a car and equipment rental company. The car rental segment operates a fleet of approximately 285,000 cars in the United States and 150,000 cars internationally.


The company’s average holding period for a rental car is fifteen months in the United States and twelve months internationally.


Hertz acquires many of its cars as “programs cars”. For program cars, the manufacturers agree to repurchase the cars at a specified price, which is generally based on a predetermined percentage of the original car cost. This program limits Hertz’s residual risk; however, typically the acquisition cost is higher for these program cars.

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