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This is an example of cash flow statement. This document is useful for creating cash flow statement.
CASH FLOW STATEMENT Statement of Cash Flow Cash Flow Classifications Operating Investing Financing Cash Flow Example (Lowe’s and Southwest Airlines) STATEMENT OF CASH FLOW ( FAS 95, 1985) Purpose: The Cash Flow Statement shows: where cash comes from where cash is going the change in cash during the period Three parts: Operating activities Investing activities Financing activities Cash Flow Statement 1 OPERATING ACTIVITIES Cash effects of transactions that determine net income. Hint: Relate to income statement accounts. Sources: Cash Sales Collection of accounts receivable Uses: payments to: Suppliers Employees Government for tax Lenders for interestCash Flow from Operations Methods of Presentation ( FAS 95, 1985) Cash Flow Statement 2 GAAP allows two methods of presentation for Cash Flow from Operations Direct method Indirect method Reality Check - SFAS 95 states a preference for the direct method; however, 98.8% of major corporations use the indirect method. Cash Flow from Operations Methods of Presentation DIRECT METHOD Procedure: Restate income statement on the cash basis Format: Cash from Sales $1,000,000 Cash Paid to Suppliers -700,000 Cash Paid to Employees -100,000 Cash Paid in Interest -50,000 Cash Paid in Taxes -60,000 Cash Flow from Operations $90,000 INDIRECT METHOD Cash Flow Statement 3 Procedure: Begin with net income and adjust for all non-cash revenues and expenses. Format: Net Income $70,000 Depreciation +65,000 Increase in Accounts Receivable* -55,000 Decrease in Inventory* +10,000 Increase in Accounts Payable* +20,000 Decrease in Taxes Payable* -20,000 Cash Flow from Operations $90,000 INTERPRETATION OF CHANGES IN * see next page for interpretation CURRENT ACCOUNTS IN AN INDIRECT CASH FLOW STATEMENT Implied Change in Current Account Effect on Interpretation Ca s h Increase in Decrease Sales were included in income this Accounts year; however, the cash will not be Receivable received until next year. Decrease in Increase Cash was collected this year for sales Accounts that occurred in previous years. Receivable Increase in Decrease Inventory was purchased this year, Inventory but will not become cost of goods sold until next year. Decrease in Increase Previously purchased inventory was Inventory included in cost of goods sold this year. Increase in Increase Income was decreased by an expense Accounts that will be paid next year. Payable Decrease in Decrease An expense from the previous year Cash Flow Statement 4 Accounts was paid this year. Payable Increase in Increase An expense that decreased income Taxes Payable this year will not be paid until next year. Decrease in Decrease Expense that decreased income last Taxes Payable year, but paid this year INVESTING ACTIVITIES Include making and collecting loans (to others), acquiring and disposing of equity instruments (of others) and of property, plant, and equipment. Sources: sale of PP&E* sale of investments in other companies collections of loans to others Uses: purchase PP&E (capital expenditures)* purchase investments in other companies Cash Flow Statement 5 loans to others * most common FINANCING ACTIVITIES Liability and owner's equity transactions such as (1) obtaining capital from owners and paying owners with dividends, and (2) borrowing money from creditors and repaying principle of loans. Hint: must involve transactions with corporations own debt or equity. Sources: issue of capital stock borrowing (issue bonds or notes, bank loan) sale of treasury stock Uses: dividends to stockholders payment of debt Cash Flow Statement 6 retirement of capital stock purchase treasury stock STATEMENT OF CASH FLOWS FORMAT Company Name Statement of Cash Flows For the Period Ending _____ I. Cash Flows from Operating Activities: Indirect Direct Net Income Cash Revenues Adjustments to Net Income Cash Expenses II. Cash Flows from Investing Activities: Sources and Uses are shown (no particular order required) III. Cash Flows from Financing Activities: Sources and Uses are shown (no particular order required) IV. Effect of Exchange Rate Changes on Cash1 V. Cash Balance Net increase or decrease in the cash PLUS + Beginning cash balance EQUALS Ending cash balance VI. Significant Non Cash Transactions* VII. Cash Amounts Paid for Interest and Taxes (If not disclosed above)* Cash Flow Statement 7 * May be shown on face of CFS or in notes Lowe's Companies, Inc. Consolidated Statements of Cash Flows (In millions) February 1, February 2, February 3, Fiscal years ended on 2008 2007 2006 Cash flows from operating activities: Net earnings $2,809 $3,105 $2,765 Adjustments to reconcile operating activities: Depreciation and amortization 1,464 1,237 1,051 Other 152 79 70 Changes in operating assets and liabilities: Merchandise inventory - net (464) (509) (785) Other operating assets (64) (135) (38) Accounts payable 185 692 137 Other operating liabilities 265 33 642 Net cash provided by operating activities 4,347 4,502 3,842 Cash flows from investing activities: Purchases of short-term investments (920) (284) (1,829) Proceeds from maturity of short-term investments 1,183 572 1,802 Purchases of long-term investments (1,588) (558) (354) Proceeds from maturity of long-term investments 1,162 415 55 Fixed assets acquired (4,010) (3,916) (3,379) Other 50 56 31 Net cash used in investing activities (4,123) (3,715) (3,674) Cash flows from financing activities: Net increase in short-term borrowings 1,041 23 - Proceeds from issuance of long-term debt 1,296 989 1,013 Repayment of long-term debt (96) (33) (633) Proceeds from issuance under employee plans 149 176 290 Cash dividend payments (428) (276) (171) Repurchase of common stock (2,275) (1,737) (774) Excess tax benefits of share-based payments 6 12 - Net cash used in financing activities (307) (846) (275) Net decrease in cash and cash equivalents (83) (59) (107) Cash and cash equivalents, beginning of year 364 423 530 Cash and cash equivalents, end of year $281 $364 $423 Supplemental disclosures of cash flow information: Cash paid for interest, net of amount capitalized $198 $179 $173 Cash paid for income taxes $1,725 $2,031 $1,593 Cash Flow Statement 8 Noncash investing and financing activities: Noncash fixed asset acquisitions, $99 $159 $175 Test Your Cash Conversions of long-term debt to equity $13 $82 $565 Flow Statement Knowledge 1. Did Lowe’s inventory increase or decrease during 2008? 2. Did the amount of long-term debt on the balance sheet of Lowe’s increase or decrease during 2006 to 2008? 3. What was the ending cash balance of Lowe’s in 2005? $ _____________________ 4. What was the most likely use of the proceeds from maturities of investments during 2008? 5. What was the most likely use(s) of funds generated from operations during 2008? 6. What was the most likely use of proceeds from borrowing during 2008? SOUTHWEST AIRLINES CO. CONSOLIDATED STATEMENT OF CASH FLOWS Cash Flow Statement 9 YEARS ENDED DECEMBER 31, (In thousands) 1999 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 474,378 $ 433,431 $ 317,772 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 248,660 225,212 195,568 Deferred income taxes 142,940 108,335 81,711 Amortization of deferred gains (15,172) (15,251) (15,414) Amortization of scheduled inspections & repairs 28,949 22,763 20,540 Changes in certain assets and liabilities: Accounts receivable 15,421 (12,269) (3,090) Other current assets (31,698) 1,589 6,243 Accounts payable and accrued liabilities 64,335 53,194 8,751 Air traffic liability 56,864 46,737 (4,757) Other current liabilities 156 19,293 (4,204) Other 16,877 3,101 7,468 Net cash provided by operating activities 1,001,710 886,135 610,588 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,167,834) (947,096) (688,927) Net cash used in investing activities (1,167,834) (947,096) (688,927) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 255,600 -- 98,764 Payment of long-term debt (12,107) (118,859) (12,665) Payment of cash dividends (10,842) (9,284) (6,593) Proceeds from Employee stock plans 64,288 44,272 40,335 Repurchase of common stock (90,507) (100,000) 0 Net cash provided by (used in) financing 206,432 (183,871) 119,841 NET CHANGE IN CASH 40,308 (244,832) 41,502 CASH AT BEGINNING OF PERIOD 378,511 623,343 581,841 CASH AT END OF PERIOD $ 418,819 $ 378,511 $ 623,343 CASH PAYMENTS FOR: Interest, net of amount capitalized $ 26,604 $ 33,384 $ 42,372 Income taxes $ 131,968 $ 147,447 $ 107,066 SAMPLE EXAMINATION 1. Why is net income much smaller than cash flow from operations in 1999? Cash Flow Statement 10 The difference results primarily from depreciation, which was subtracted to find net income, but did not require a cash expenditure. The difference was also from performing operations in 1999 that will require tax payments in later years. 2. Did long-term liabilities increase or decrease on the balance sheet in 1999? In1998? During 1999, SWA issued $255,600 in debt and paid off $12,107. Therefore, debt in 1999 increased. During 1998, SWA did not borrow and they paid off $118,859; long-term debt decreased during 1998. 3. How was property and equipment paid for during 1999? SWA paid for PP&E primarily from cash received from operations. They also had to borrow a small amount. Cash Flow Statement 11
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