Ch.12 Statement of Cash Flows by NeilOlder

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									Ch.12 Statement of Cash Flows

Prof. J. Wang

Chapter 12, Slide #1

• How to read statement of cash flows • How to prepare statement of cash flows

Chapter 12, Slide #2

Part I How to read statement of cash flows?

Chapter 12, Slide #3

• How much cash did the company generate from its operations? • Was the cash generated from its operations enough to pay for capital expenditures? • Was the cash from operations, after paying for net capital expenditures, adequate to pay its shareholders’ dividends?
Chapter 12, Slide #4

Free cash flows
• The amount of cash that remain after deduction net capital expenditure and dividends from cash from operations. • If free cash flows are positive, it means that the company has met all its planned cash commitments and has cash available for expansion or reducing debt.
Chapter 12, Slide #5

Part II How to prepare statement of cash flows

Chapter 12, Slide #6

Statement of Cash Flows Format
Cash flows from operating activities: Inflows Outflows Net cash provided (used) by operating activities Cash flows from investing activities: Inflows Outflows Net cash provided (used) by investing activities Cash flows from financing activities: Inflows Outflows Net cash provided (used) by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year $ xxx (xxx)

$xxx
$ xxx (xxx) xxx $ xxx (xxx) xxx $xxx xxx $xxx

from balance sheets
Chapter 12, Slide #7

1. Classification of cash flows
• Operating activities • Investing activities • Financing activities

Chapter 12, Slide #8

Operating Activities
Cash transactions Collection of customer accounts concerned with acquiring and selling products and services (income statement activities) Payment of wages Payment of taxes
Chapter 12, Slide #9

Payment to suppliers for inventory

Investing Activities
Cash transactions concerned with acquiring and disposing of longterm assets
Capital expenditures

Sale of property, plant, and equipment

Purchase/sale of another company

Chapter 12, Slide #10

Financing Activities
Issuance/repurchase of stock
F DE E RALRE E S RVENOT E

Issuance/repayment Cash of bank note transactions concerned with the raising and repayment of funds in the form of debt and equity Issuance/retirement
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of bonds
Chapter 12, Slide #11

Payment of dividends

Categorizing Cash Flow Activities
Operating Activities
Current assets and current liabilities Long-term liabilities or stockholders’ equity

Investing Activities

Long-term assets
Chapter 12, Slide #12

Financing Activities

2. Methods to Report Cash from Operating Activities
 Direct Method
• Reports major classes of gross cash receipts and cash payments The amount of cash provided by operating activities is the same under both methods

Indirect Method
• Adjusts net income to remove the effect of all accruals and deferrals
Chapter 12, Slide #13

LO4

Statement of Cash Flows Format
Cash flows from operating activities: Inflows Outflows Net cash provided (used) by operating activities Cash flows from investing activities: Inflows Outflows Net cash provided (used) by investing activities Cash flows from Only section of statement financing activities: Inflows that differs in form between Outflows direct and indirect method Net cash provided (used) by financing activities (net cash flow total is the Net increase (decrease) in cash and cash equivalents same) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
Chapter 12, Slide #14

$ xxx (xxx)

$xxx
$ xxx (xxx) xxx $ xxx (xxx) xxx $xxx xxx $xxx

Direct method
Cash flows from operations:
Cash collected from operations Less: cash paid for operations
Purchase of inventory Salaries Income taxes Interest expense xxx xxx xxx xxx

xxx

Net cash provided/used by operations

xxx xxx

Start with the income statement and adjust for changes in current assets and liabilities For example, to compute cash collected from sales: Sales + beginning A/R – ending A/R Or Sales +/- decrease/increase in A/R

Chapter 12, Slide #15

Indirect method
Cash flows from operations:
Net income xxx Adjustments to convert net income to cash flows from operating activities:
Add: non-cash expenses/losses Less: non-cash gains +/- decrease/increase in current assets
+/- increase/decrease in current liab.

xxx xxx xxx
xxx

Net cash provided/used by operations
Chapter 12, Slide #16

xxx xxx

Cash flows from investing activities
• Examining the change in long-term assets • Examine additional transaction information

Chapter 12, Slide #17

Cash flows from financing activities
• Examining the change in long-term liabilities and shareholders’ equity • Examine additional transaction information

Chapter 12, Slide #18


								
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