...Form. Only the answer on the Multiple Choice Answer Form will be counted for grading purposes. Use the information given in the chart on Page 2 to answer questions 1 to 5 1. Look at the “before” and “after” words for Account Category: Property, Plant, & Equipment, and select the correct statement below: A. All of the “before” and “after” words are correct. B. All of the “before” and “after” words are incorrect. C. Some of the “before” and “after” words are correct and some of the “before” and “after” words are incorrect. 2. Look at the “before” and “after” words for Account Category: Prepaid Assets, and select the correct statement below: A. All of the “before” and “after” words are correct. B. All of the “before” and “after” words are incorrect. C. Some of the “before” and “after” words are correct and some of the “before” and “after” words are incorrect. 3. Look at the “before” and “after” words for Account Category: Accrued Liabilities, and select the correct statement below: A. All of the “before” and “after” words are correct. B. All of the “before” and “after” words are incorrect. C. Some of the “before” and “after” words are correct and some of the “before” and “after” words are incorrect. 4. Look at the “before” and “after” words for Account Category: Unearned Revenue Liabilities, and select the correct statement below: A. All of the “before” and “after” words are...
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...statement of cash flows. Each of these financial statements are important to a business for a different reason. Today, we will look at these financial statements, examine the importance and show what business decisions can be made from each statement. In addition, we will look at these financial statements for Home Depot and see what their financial statement say about the company’s financial state. Consolidated Statement of Earnings The Consolidated Statement of Earnings, the income statement, reveals the profit or loss of a company as well as other crucial numbers that investors and creditors will look for. For the Home Depot, their income statement shows that from 2007 to 2009, profit was earned each year. However, profit decreased each year. The decrease in profit is directly related to the decrease of net sales. Home Depot’s expenses decreases along with sales and therefore, they were still able to show a profit. Their net sales decreased significantly from 2008 to 2009, while their cost of sales did not change significantly. The income statement is important because it shows the profitability of a company during the time interval specified in its heading. The period the statement covers is chosen by the business. Normally the period is based on the company’s fiscal year, however may change. The income statement shows revenues, expenses, gains, and, losses Items not included in an income statement are cash receipts and cash disbursements...
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...What is the purpose of a cash flow statement? The primary purpose of a cash flow statement is to provide information about cash receipts, cash payments, and the net change in cash resulting from the operating, investing, and financing activities of a company during the period. . Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet Operating Activities This tells how much income you make over the year and from this you can tell if you have a good cash flow and this is how you tell if you can get a loan from the bank because if you have a good cash flow then the bank will accept this with open arms and look to make money back in the process. Also, you can look at attracting investors instead of getting a loan this may work out cheaper for you. Operating activities include the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product. A healthy cash flow means that you can pay for these. Financing Activities If the business has a healthy cash flow then they will be able to get a loan from the bank. Then the bank will look to make more money because they know the business can pay this back if they have a healthy cash flow statement for example if the company ask for £1...
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...Analysis the Statement of Cash Flows www.AssignmentPoint.com www.AssignmentPoint.com he Statement of Cash Flows presented by a company, provides information about the cash inflows and outflows within a certain period of time, and it can predict the future cash flows of the company. It keeps track of company's cash and categorizes it into either operating activities, investing activities, or financing activities. Operating activities use the items located on the income statement and convert them from accrual basis to cash basis accounting. Investing activities show the purchases and sales of long term investments. Financing activities show the changes in long term liability and stockholders equity accounts. Paying dividends is also displayed under financing activities. With that said, all three types of activities are shown on the Statement of Cash Flows. This statement is very useful for a company itself, as well as future employees and outside companies looking in. People want to see a future employer that has a lot of cash, brings in a lot of revenue, and has minimum expenses. The Statement of Cash Flows can show these future employees where the cash is coming from and where it is going. When preparing the Statement of Cash Flows, the company uses information from comparative balance sheets, the current income statement, and specific transaction data related. Comparative Balance Sheets allow the company to compare the assets, liabilities and stockholders'...
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...are several strategies that are used by each of the fore mentioned entities. When deciding if investing is the right choice, if a company will be able to repay a loan, or what needs to happen to make a company more efficient, the best way to get an inside look at the company and the information needed, would be to look at the financial statements. By looking at the income statement, balance sheet, and the statement of cash flow, the financial health of the company can be discovered. A shareholder or potential investor will certainly want to see if the company that they are investing in is going to give them a return on their investment. To get a clear picture of whether or not this concept is a possibility, the information would best be gathered from the income statement. Investopedia defines an income statement as “a financial statement that measures a company’s financial performance over a specific accounting period.” (Investopedia, 2013) One is able to look at the income statement to assess the financial summary of how revenue and expenses through operating and non-operating activities are incurred. It will show the reader any net profit or loss that has incurred over a year or fiscal quarter. An investor would look at the income statement because it provides information on revenue and expenses that correlate to regular business operations. Basically this is an indication of how profitable the company is which is why the income statement is sometimes known as a profit...
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...companies separately and needs to know what he will need to convince the companies to make the right decision. I have looked over our financial documents and highlighted the important information needed for my supervisor in his upcoming meetings. Company #1 This company is willing to take part ownership and invest in our Corporation. The first thing the company is going to want to know is where our cash is coming from. For this, we are going to look at our statement of cash flow. If we have operating activities it is a good sign for these companies, investing activities are a bad sign, and financing activities are an okay sign. Next, they will want to know if our high sales and profits are translating into more cash. We will also look at the statement of cash flow to figure this out. The most important thing the company will look for when answering this question is seeing if cash flows are coming from our operating activities. This will ensure our long term success, and make them feel more comfortable when investing with our Corporation. We look at our statement of cash flow again to prove if our sales and profits are high or low. If they’re low, how are we coming up with...
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...Cash Flow Greg George December 7, 2013 Cash flow statements are important for every business. Cash flow statements tell investors, banks, and the company’s management what is going on with the company’s cash. Investors want to know if a company can and if they have paid dividends and a cash flow statement can provide this kind of information. When banks look at giving a loan to a company they look at a lot of different statements and on of them is the cash flow statement. From a cash flow statement banks can determine if a company is handling there cash intake and out flow correctly. A cash flow statement can also show if a company is doing something shady with their money or taking unnecessary risks that would put investors and bank at risk of not getting their investment back. Cash flow statements are classified into three sections; operating, investing, and financing activities. Each section tells a different story inside the cash flow statement. The cash flow statement is separated into three sections so that investors and banks can get a better understanding of each part of the cash flow statement. Each section stands for the following; “Operating activities include the cash effects of transactions that create revenues and expenses. They thus enter into the determination of net income. Investing activities include (a) acquiring and disposing of investments and property, plant, and equipment, and (b) lending money and collecting the loans. Financing activities...
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...collection of large business to business claims. CREDIT MANAGER SEMINARS This video series introducing you to financial statement analysis is based on the dozens of training seminars I have given to credit industry groups organized by Dun & Bradstreet, the National Association of Credit Management and Riemer Reporting Services. It is applicable to anyone wanting to learn about this topic, although on occasion I will highlight information from the perspective of credit management. 3 FINANCIAL STATEMENTS Cash Flow Statement For the Year Ended December 31, 2011 (000s) Cash Flows From Operating Activities Net Income 397 Depreciation and amortization 318 Unrealized gain on marketable securities Decrease (increase) in deferred taxes (12) Balance Sheet (44) As of December 31, 2011 (000s) Net increase (decrease) in receivables, inventories, prepaids, payables Total Cash Flows From Operating Activities Assets Cash Cash Flows From Investing Activities (97) 562 Liabilities 481 Accounts Payable Purchase of machinery, equipment, Marketable Securities and improvements 1,346 Current Portion L-T Debt (230) Decrease (increase) in employee advances Accounts Receivable...
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...How to manage cash flow Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, limited period of time. Cash flow can be used, for example, for calculating parameters: it discloses cash movements over the period. Cash flow entails the movement of funds in and out of a business. This information should be tracked on a weekly, monthly or quarterly basis to identify where a business is currently from a financial standpoint and where it will be several months in the future. When it comes to the basics of cash flow one should know there are two types of cash flow: positive and negative. Positive cash flow means the cash coming into the business exceeds the amount leaving through expenses, salaries and accounts payable. On the other hand, negative cash flow means the cash going out of the business is greater than incoming cash. One thing that’s not for certain is positive cash flow. Companies have to work very hard at it and manage cash effectively to control the inflow and outflow of funding. In order to project cash flow a business must know the budget process well. The budget process is designed to help anticipate and create strategies for funding during shortages or investing during surpluses, helps a company know how much it will receive and spend at any point in time. To successfully project cash flow, organizations look at their prior year’s checkbook as a basis of cash flow for the following...
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...Caledonia Products Integrative Problem FIN/370 August 19, 2012 1. Why should Caledonia focus on project free cash flows as opposed to the accounting profits earned by the project when analyzing whether to undertake the project? It is important that Caledonia Company should focus on the free cash flows instead of the accounting profits. With the free cash flows that the company receives they can reinvest. To accurately analyze the timing of the benefit or cost we can examine the cash flows. The only cash flows that the company should be interested in are the after-tax basis because these are the flows that are available to shareholders. When we look at the company as a whole, that shows us how important the incremental cash flow is and that interests the company. These incremental cash flows are the marginal benefits from the project and since the firm accepts the project they are the increased value to the firm. 2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings? Incremental Cash Flows for Caledonia years 1 to 5 1YR 2YR 3YR 4YR 5YR 21,000,000 36,000,000 42,000,000 24,000,000 15,600,000 Project Revenue 200,000 200,000 200,000 200,000 200,000 Minus fixed expenses 12,600,000 21,600,000 25,200,000 14,400,000 10,800,000 Minus variable expenses 8,200,000 14,200,000 16,600,000 9,400,000 4,600,000 Equals gross...
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...Cash is vitally important in the business world. Without it, no firm will survive fowor long. Consequently, understanding a company’s cash inflows and cash outflows is critical for investors. The statement of cash flows provides a revealing examination of these flows, i.e. how a company makes and spends their cash. Furthermore, the cash flow ratios that can be computed from the statement of cash flow can be very telling. The case study entitled, “Eat at M Restaurant - Cash Flow” analyzes several cash flow ratios of three restaurant companies. The statement of cash flows classifies cash receipts and cash payments into operating, investing, and financing activities. However, with consideration to the long-term profitability of a company, the net cash provided by operating activities may be the most significant. Essentially, it is the amount of cash generated by the company from its main operations. These funds not only fund the business, but also keep the company alive when times are tough in the investing and financing world. Therefore, from an investor’s standpoint, it is imperative that cash flow from operations represents a substantial portion of a company’s profits or net income. The first restaurant company examined, Yum Brands, Inc., experienced a sharp decline in their operating cash flow/current maturities of long-term debt and current notes payable. This ratio indicates a firm’s ability to meet the current maturities of debt. The higher the ratio, the better...
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...perform a monthly cash flow analysis for the fiscal year ending December 31st, 1990. Robert & Alex would like to open up their own restaurant/brew pub with $200,000 of their own money and with the use of external financing to finance the rest of the company until excess cash flows remain stable and positive. The second issue is to identify the key variables in this analysis. With every company, there are certain variables which affect cash flow significantly more than others. How would changes in these key variables which are identified for this particular business affect the cash flow for Kellers' Freehouse? Is there anything that can be done to fix these variables or to control them better to secure a more positive cash flow? RECOMMENDATIONS Creating a cash flow budget for the fiscal year ending 1990 will help to project cash disbursements and receipts and will inform Robert & Alex of the size of the loan that they must request in order to make it through the first fiscal year of operation with a positive cash flow. Creating five separate cash budgets projecting for sales of $550,000, $600,000, $650,000, $700,000 and $750,000 will help to view the bigger picture. Due to the fact that projected sales are perceived to be anywhere from $550,000-$750,000, projecting the cash budget for several different sales levels is a quick and easy way to perform a type of sensitivity analysis. We are checking to see how changes in sales will affect the cash flow (receipts, disbursements...
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...money into the company. Equity investors look for an indication of stability and the potential growth. Debt investors are concerned with the firm's ability to generate cash to make interest .Vendors who supply the firm on credit look for its ability to pay its bills in the short term. Management uses financial information to pinpoint problem areas for improvement in operations. 2. Financial information about companies comes mainly from the companies themselves. The primary source is the annual report. The numerical information is usually correct, especially with respect to prospects for the future. 3. The whole idea behind financial analysis is to be investigative and critical. The analyst is always looking for potential problems that may make the future less attractive than the past. 4. Cash in the bank is an asset that had to be put there. Putting it there uses cash that then can't be used anywhere else until it's withdrawn. Thus, increasing the cash balance uses cash. 5. The Changes in the equity accounts come from three sources, net income, dividends and the sale of new stock. Net income is included in operating activities, while dividends and new stock sales are part of financing activities. The change in the cash balance is treated as a reconciling item in the cash flow format. 6. Free cash flow is a firm's gross cash flow less necessary reinvestments. It's essentially cash available for distribution as dividends...
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...Problems of cash flow forecast Negative balance in January – May and July: Negative balance is a bad thing for any business as without a good closing balance the business wouldn’t be able to carry out its basic activities and won’t afford to run its business which can ultimately lead to the closure of the business. Dessi Designs based on its cash flow forecast may not be able to pay for its stock from its suppliers and this would can lead to their suppliers refusing to supply them with stock, the business cannot afford to pay rent in the month may as it already has a negative balance of -£1,000 which means they cannot afford to pay their rent, the refusal to pay rent could lead to eviction which means the business could lose it premises of operation which means the closure of the business; as there is neither stock nor a shop to sell the coats. Overstocking: Dessi Designs has a problem of overstocking, they would buy 500 stock each month regardless of how much they sell. In January and February they only sold 100 and 200 coats respectively; buying more stock than it needs, these stock are just tied down and not sold or returned to the supplier, 700 coasts at a cost of £7000 not sold throughout the year, this is £7000 unnecessarily tied up in stock. Overstocking isn’t good for the business as they order excess stock than needed from the supplier, the excess stock never gets sold and just stays in the business thus causing negative cash flow for the business. Rent:...
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...Pro forma analysis cash flow forecasting Apartment Investment Case Study Scenario An investor is considering buying an apartment building with 140 units offered for sale at $16,500,000. The subject apartment building has the following unit mix: Additionally, the following assumptions are also being made by the investor in order to construct a 5-year cash flow pro forma: Vacancy and Credit Loss In the current market, vacancy and credit losses are running at 9%. Due to the improving market conditions as well as the investor’s prior experience leasing and operating multifamily buildings, it’s expected that vacancy will steadily decline over the next 5 years to 5%. Potential Rental Income Potential rental income is based on the above unit mix. The 1-bedroom and studio rental rates are expected to increase at 1% annually. The 2-bedroom units are expected to increase at 2% annually. Financing After a preliminary discussion with a relationship manager at a local bank it’s determined that a loan can be extended based on the lesser of a 1.25x debt service coverage ratio or 80% loan to value. Additionally, assuming the underwriting process doesn’t reveal any red flags, it’s expected that the loan will be based on a 20 year amortization and a 6% interest rate. Operating Expenses The following table breaks out historical operating expenses for the property as well as projected increases over the holding period. Reserves for Replacement In addition to the above operating expenses...
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