Sweden-based Ericsson (Telefonaktiebolaget L. M. Ericsson) is the world€™s leading provider of communication technology, telecommunications equipment and services to mobile and fixed telecom network operators. Over 1,000 networks in more than 180 countries use its network equipment, and more than 40 percent of the world€™s mobile traffic passes through Ericsson networks. In mid 2012, Ericsson was the world€™s largest mobile telecommunications equipment maker with a market share of 38 percent.
Ericsson operates in three segments and two joint ventures:
€¢ Networks, which involves telecommunications infrastructure and related deployment services.
€¢ Professional services, which include managed services, services for network systems integration, consulting, and education and customer support services.
€¢ Multimedia, which involves networked media and messaging, enterprise applications, revenue management, service delivery platforms (SDP) and mobile platforms. Plus
€¢ Sony Ericsson: A 50/50 joint venture with Sony Corporation, Sony Ericsson offers mobile phones, accessories, content and applications. This JV was divested on 16 February 2012 through a sale to Sony for E1.05 billion.
€¢ ST-Ericsson: A 50/50 joint venture with STMicroelectronics NV, ST-Ericsson offers wireless platforms and semiconductors for leading handset manufacturers.
The recent evolution of sales by business segments is shown below:

The following statements of cash flows are for the years 2008 through 2011 (Sources: Ericsson, Annual reports 2009 through 2011). Ericsson complies with IFRS.

Required
Step one: Understanding
1. Which method is used for computing the cash flow from operating activities?
2. What does the €˜Changes in operating net assets€™ represent?
3. Compute the potential cash flow (see this concept in Chapter 14).
4. What does the €˜Cash flow before financing activities€™ represent?
Step two: Analyzing
5. Prepare an analysis of the statement of cash flows.

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Ericsson (n SEK billions20112010 Networks Professional services Multimedia Sony Ericsson ST-Ericsson Total Less: Intersegment sales Total net 2009 2008 132,395112,708 114,085120,520 70,508 17,902 72,148 108,753 80,123 10,517 60,178 16,519 284,606 280,045 297,891 76,697 79.120 13,272 83.884 10,642 46,992 10,693 19,266 57,685 226,921 317,683 91414 108,753 203.348 206.477208,930 2011 2010 2009 2008 Ericsson (in % of total) NetworksS Professional services Multimedia Phones Unallocated Total 47% 29% 4% 17% 4% 100% 29% 4% 21% 6% 100%| 38% 27% 4% 24% 6% 100%| 38% 22% 6% 34% 0% 100% Consolidated statements of cash flows SEK (millions) 20112010 2009 2008 Operating activities Net income 12,569 1,235 4,127 11,667 12,613 12,490 16,856 14,318 25,182 23,725 20,983 25,985 Adjustments to reconcile net income to cash Changes in operating net assets Inventories Customer finance, current and non-current Trade receivables Trade payables Provisions and post-employment benefits Other operating assets and liabilities, net 3,243 -7,917 5,2073,927 549 1,700 4,407,66811,434 1,648 5,9643,522 4,749 -5,6952,7392,950 3,830 2,988 5,2693,508 4,203 -15,2002,858 3,4932,030 9,982 26,58324,476 23,955 742,125 598 Cash flow from operating activities Investing activities Investments in property, plant and equipment Sales of property, plant and equipment Acquisitions of subsidiaries and other operations Divestments of subsidiaries and other operations Product development Other investing activities Short-term investmenits Cash flow from investing activities Cash flow before financing activities Financing activities Proceeds from issuance of borrowings Repayment of borrowings Sale of own stock and options exercised Dividends paid Other financing activities Cash flow from financing activities Effect of exchange rate changes on cash Net change in cash Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period -4,9943,6864,0064,133 534 1,373 74 454 1,239 1,910 -1,515 1,6441,4431,409 944 17,071-7,155 4,54112,541 37,4628,544 14,523 14,04212,986 15,411 386 -3,183,2869,321 124 53 9001,487 2,606 14,692 3,016-1 2,076 2,58014,153 5,245 -1,2591,4499,8044,216 3 7,455-6,6776,3188,240 92 69 52 175 199 6,494-5,6701,707,208 -217 363281,255 7,812 8,06615,015 9,458 30,864 22,798 37,813 28,310 38,676 30,864 22,798 37,768