Cash Flow Statement - DOC

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					                      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.


 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

                      Cash Flow from Operations
                       Methods of Presentation

Procedure: Restate income statement on the cash basis


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


Cash Flow Statement                                      3
Procedure: Begin with net income and adjust for all non-cash revenues and


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

  * see next page for interpretation

   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.
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
Increase in             Increase       Income was decreased by an expense
Accounts                               that will be paid next year.
Decrease in             Decrease       An expense from the previous year

Cash Flow Statement                                                             4
Accounts                         was paid this year.
Increase in           Increase   An expense that decreased income
Taxes Payable                    this year will not be paid until next
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.


 sale of PP&E*
 sale of investments in other companies
 collections of loans to others


 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

Hint: must involve transactions with corporations own
debt or equity.

 issue of capital stock
 borrowing (issue bonds or notes, bank loan)
 sale of treasury stock


 dividends to stockholders
 payment of debt

Cash Flow Statement                                      6
 retirement of capital stock
 purchase treasury stock

                                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?


Cash Flow Statement                                                   9
YEARS ENDED DECEMBER 31, (In thousands)               1999           1998           1997
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

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)

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

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

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