...The statement of cash flow's primary purpose is to provide information regarding a company's cash inflows and outflows during a specified accounting period. This paper will focus more on how cash flow is helpful to external users. The statement of cash flow complements the income statement and the balance sheet. When credit decisions are made, many factors must be assessed. According to FASB (SFAS-95, paragraph 5) the information on actual cash flows is useful to help creditors, investors, and other external parties asses (1) the ability of an enterprise to generate positive future net cash flows, meet its obligations, and pay dividends; (2) the needs for external financing; (3) the reasons for the differences between cash flow from operating activities and net income (or change in net assets); and (4) the effects on financial position of cash and non-cash investing and financing activities. Cash flows are classified as operating, investing, or financing activities. Operating activities relates to company’s primary revenue generating activities such as cash generated from the sale of goods and cash paid from merchandise. Investing activities includes lending money and collecting on loans related to noncurrent assets. For example, cash generated from the sale of land. Financing activities include borrowing and repaying money from creditors related to noncurrent liabilities and owners’ equity. The goal is for company to have a positive cash flow from operating. This is the area...
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...“Financial Accounting, sixth edition”, cash flow “permits a company to expand operations, replace worn assets, take advantage of new investment opportunities, and pay dividends to its owners”. Analyzing cash flow enables one to understand what happened to cash and cash equivalents throughout a specific period – how to the beginning balance of cash become the ending balance. The statement classifies cash flow in three different categories; operating activities, investing activities, and financing activities. To better understand and prepare the statement manipulating the balance sheet equation is a must. Assets can be further broken down into cash/cash equivalents and noncash asset. It is important to note that any change in cash also results in a change of liabilities, stockholder’s equity or noncash assets. With all of this, the “new” equation follows, change in cash = change in liabilities + change in SE – change in noncash assets. Cash flows from operating activities relate directly to revenues and expenses on the income statement. Examples of cash inflow activities include cash received from customers, dividends and interest on investments. Examples of outflows would be salaries, wages and income taxes. There are two methods in which one can present operating activities on the statement. It is important to note that both methods will provide the same number. The first is the direct method. This method “reports components of cash flow as gross receipts and gross payment...
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...Cash Flow Assignment Companies are required to prepare a statement of cash flows (SCF) in their annual reports because it contains necessary information for external users, such as lenders and investors, who make economic decisions about the companies. It presents the sources and uses of cash and is a basis for cash flow analysis. Because it shows how much actual cash a company has generated, it presents if and how the company is able to pay for its operations and future growth. Companies produce and consume cash in different ways, so the cash flow statement is divided into three sections: cash flows from operations, financing and investing. Basically, the sections on operations and financing show how the company gets its cash, while the investing section shows how the company spends its cash. The cash flow statement is the newest of the three financial statements; companies have only been required to furnish investors with it since 1988. The cash flow statement is similar to the income statement, except that it dispenses with some of the abstract items found on the income statement (such as depreciation) and focuses on actual cash. Most of the information found on the cash flow statement is contained in either the income statement or the balance sheet, but here it is organized in such a way that it is difficult for companies to use accounting tricks to obscure the facts. The cash flow statement is broken down into three parts: Here you’ll find how much money the company...
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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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...Chapter 12 Cash Flow Estimation and Risk Analysis LEARNING OBJECTIVES After reading this chapter, students should be able to: • Discuss difficulties and relevant considerations in estimating net cash flows, and explain the four major ways that project cash flow differs from accounting income. • Define the following terms: relevant cash flow, incremental cash flow, sunk cost, opportunity cost, externalities, and cannibalization. • Identify the three categories to which incremental cash flows can be classified. • Analyze an expansion project and make a decision whether the project should be accepted on the basis of standard capital budgeting techniques. • Explain three reasons why corporate risk is important even if a firm’s stockholders are well diversified. • Identify two reasons why stand-alone risk is important. • Demonstrate sensitivity and scenario analyses and explain Monte Carlo simulation. • Discuss the two methods used to incorporate risk into capital budgeting decisions. • List four different types of embedded real options, explain what a decision tree is, and provide an example of one. • List the steps a firm goes through when establishing its optimal capital budget in practice. LECTURE SUGGESTIONS This chapter develops procedures for estimating and identifying relevant cash flows, discusses techniques used to measure and take account of project risk, introduces the concept of real options, and discusses general...
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...CONCEPTS a. The statement of cash flows details the actual cash generated through a specific time period, usually for fiscal year ending 20XX, for example. The cash flow statement, specifically, identifies the actual cash flowing in and out of the company and reveals how a company spends its money. Conversely, the income statement is based on the accrual method of accounting and will contain revenue, for example, that has not been received or expenses that have not yet been paid. b. The two separate methods to prepare the statement of cash flows is the direct and indirect method. Weis Markets uses the indirect method of accounting due to the fact the company uses the accrual method of accounting and derives data from both the balance sheet and income statement. Most companies, public companies specifically, use the indirect method of accounting as most implement accrual accounting. Smaller companies on a cash basis would use the direct method for statement of cash flows. c. The three sections of the statement of cash flows is investing, operating, and financing activities. d. Operating activities pulls from items on the income statements. Investing activities reports the purchase and/or sale of investments and property, plant, and equipment on the balance sheet. Financing activities reports the issuance and repurchases of company stocks, bonds, and payments of dividends on the balance sheet. e. Cash equivalents are current, highly liquid assets that...
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...4/8/2011 Cash Flows Scribd Upload a Document Search Books, Presentations, Business, Academics... Search Documents Explore Documents Books - Fiction Books - Non-fiction Health & Medicine Brochures/Catalogs Government Docs How-To Guides/Manuals Magazines/Newspapers Recipes/Menus School Work + all categories Featured Recent People Authors Students Researchers Publishers Government & Nonprofits Businesses Musicians Artists & Designers Teachers + all categories Most Followed Popular Sign Up | Log In scribd.com/doc/22806908/Cash-Flows 1/48 4/8/2011 Cash Flows STATEMENT OF CASH FLOWS TRUE-FALSE STATEMENTS 1. The statement of cash flows is a required statement that must be prepared along with an income statement, balance sheet, and retained earnings statement. For external reporting, a company must prepare either an income statement or a statement of cash flows, but not both. A primary objective of the statement of cash flows is to show the income or loss on investing and financing transactions. A statement of cash flows indicates the sources and uses of cash during a period. Operating activities include the cash effects of transactions that create revenues and expenses. In preparing a statement of cash flows, the issuance of debt should be reported separately from the retirement of debt. Noncash investing and financing activities must be reported in the body of a statement of cash flows. The statement of cash flows classifies cash receipts and payments...
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...Introduction Cash flow is one of the main components in accounting, this aid to decision-making in a company, so that decisions are more effective. Companies whose main objective is to generate profits for there to be a good flow of currency in which they can invest in new projects to become the best on the market, for this they need to have enough money to support the business expenses that are made weekly, monthly or annually, and also have money to save and to invest in future projects. With cash flow we can take care of managing money in which the company receives profits generated by the company and detect where it enters the cash sales made and where it exits the expenses you have. What is cash flow? The cash flow statement can be found in the financial statements of companies in which they must comply by accounting laws that are in the countries of the world. Which provides us with useful information, and accurate information for the entry and exit of cash from the company, in which the managers of the companies used to be a help in making decisions for future projects of enterprises and activities financial, operational, administrative, etc. Companies always need cash flow because it contains financial information that can be reliable, as you can see in detail the ins and outs of cash that the company has the decision-making process with companies. Therefore we can say that the definition of the state of the flow of cash financial information that takes into account...
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...Cash Flow Statements Mindy Blankemeyer XACC/291 March 1, 2015 Tameka Johnson Cash Flow Statements Cash flow statements, which are also referred to as statement of cash flow, are a part of a company’s essential worksheets which demonstrate how a company has performed over a specific amount of time. Companies are required to prepare a cash flow statement because it will list all of the information the owners and investors will need to make important decisions about the company. The statement will provide the incoming cash, the outgoing cash, and the amount of cash on hand for expansion and growth. A cash flow statement is divided into three sections. Cash flow from operations, financing and investing. Within these three sections of a cash flow statement, the cash from operations and financing will show how and where the company is receiving its money from, and the investing section will show where the company spends its money. In a closer look at these three sections, under the operations column, listed will be the income the company has earned from sale of goods, or monies received from services offered. Also in this section will be some expenses such as insurance and accounts payable. Under the investment section of a cash flow statement will be a column which is dedicated to the investments the company is making. If the company purchases or sells property, buildings, or new equipment, it will be listed in this section. In the final financing section of a cash...
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...Cash Flow Quita Myrstol 4/23/15 XACC 291 Sheila Sullivan Companies consume and produce cash in many different ways. The cash flow statement show how each individual company obtains and uses their cash. The cash flow statement is divided into three sections. These sections consist of cash flows from operations, investing, and financing. The cash flow from operations is the source of the company’s cash generation. This particular cash generation is cash flow that is produced within the company itself. In the operations section of the cash flow statement the net income is adjusted for decreases and increases to working capital, which would be the liabilities and operating assets portion of the balance sheet. Inflows of cash in the investment section may include capital expenditures for equipment, plant, property, and purchases of investment securities. This money is understood that the use of this cash is necessity for proper maintenance and additions to the company’s physical assets in attempt to grow and support operations and gain competitive edge. In short, the sections on financing and operations show how the company obtains its cash. The investment section shows how the company spends its cash. The financial portion of the statement of cash flows shows debt and equity transactions. Companies continuously borrow and repay debt to grow, maintain, expand, upgrade, etc. The financial section shows these investments and what the investment is for. Stock can...
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...Cash Flow All companies are required to prepare a cash flow statement since it provides the necessary information that other users require. External and internal users depend on the cash flow statement to determine their paths they have decided on. Lenders and investors look at the cash flow statement to see the company’s generated income, abilities to pay loans, and growth outcome predictions. The cash flow statement contains items such as depreciation that is also on the income statement, but gives other users actual cash figures that the income statement does not provide. The statement of cash flows is divided into three sections are broken up to operations, finance and investing. Companies produce and consume cash in different ways, so the cash flow statement is divided into three sections: cash flows from operations, financing and investing. Basically, the sections on operations and financing show how the company gets its cash, while the investing section shows how the company spends its cash. Cash flows from operations shows how much cash comes from sales of the company's goods and services, minus the amount of cash needed to make and sell those goods and services. Investors tend to prefer companies that produce a net positive cash flow from operating activities. Cash flows from investing shows reflects the amount of cash the company has spent on capital expenditures, such as new equipment or anything else that needed to keep the business going. It also includes...
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...The Statement of Cash Flows Purpose of a statement of cash flows: To provide information about the cash inflows and outflows of an entity during a period. To summarize the operating, investing, and financing activities of the business. The cash flow statement helps users to assess a company’s liquidity, financial flexibility, operating capabilities, and risk. The statement of cash flows is useful because it provides answers to the following important questions: Where did cash come from? What was cash used for? What was the change in the cash balance? Specifically, the information in a statement of cash flows, if used with information in the other financial statements, helps external users to assess: 1. A company’s ability to generate positive future net cash flows, 2. A company’s ability to meet its obligations and pay dividends, 3. A company’s need for external financing, 4. The reasons for differences between a company’s net income and associated cash receipts and payments, and 5. Both the cash and noncash aspects of a company’s financing and investing transactions. What can we learn from SCF that is not already available in the other financial statements? It provides answers to important questions like: Where did cash come from? What was cash used for? What was the change...
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...reach certain achievements, but the question is do they reach their accomplishment’s. Cash flow is the backbone of any company or an organization, cash flow statements in general provides the information about a company’s gross profit for a specific period of time (Dunn 2005). The information contained in a statement of cash flows would help investors, creditors and others assess the following: The entity's ability to generate future cash flow: The main objective of a financial report is to provide data to anticipate the period that requires the amount and the uncertainty of future cash flows. By investigating the relation between assets such as net cash flow and sales from recent operating activities such as the increase and decrease of cash, it is possible to get a better result of the amounts, timing and uncertainty of future cash flows than is with accrual data basis (Dunn 2005). The entity's ability to meet obligations pay dividends: In simpler terms, cash is a necessity without cash debts cannot be resolved, employees’ wages cannot be paid, dividends cannot be paid for and equipment cannot be obtained. Creditors, employees, customers and stalk holders are the ones whom are particularly interested in the cash flow statement as it shows the progress of cash flow in a business. The difference between cash flow and net cash flow from operating activities: An important number in the cash flow statements is the net income, as it provides the information on the accomplishment’s...
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...Phoenix Cash Flow XACC/ 291 04/25/14 It is very important for companies to prepare statements of cash flow because it is very important for both internal and external use. External use means investors, lenders, creditors and banks. According to the chapter a “The statement of cash flows reports the cash receipts, cash payments, and net change in cash resulting from operating, investing, and financing activities during a period. The information in a statement of cash flows should help investors, creditors, and others assess” (Weygandt, J. J., Kimmel, P. D., & Keiso, D. E. 2010). There are three sections of cash flow and they are Operating Activities, Investment Activities and Financing Activities. Operating activities include the cash effects of transactions that create revenues and expenses. They thus enter into the determination of net income. Investment activities include (a) acquiring and disposing of investments and property, plant, and equipment, and (b) lending money and collecting the loans, and financing activities include (a) obtaining cash from issuing debt and repaying the amounts borrowed, and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends. The statement of cash flow is divided into three parts because accountant wants to see where the money is going. Also because companies normally use cash from different places the cash of cash flow is divided into three sections. Each section of the statement of cash flow has their...
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...The Statement of Cash Flows Purpose of a statement of cash flows: To provide information about the cash inflows and outflows of an entity during a period. To summarize the operating, investing, and financing activities of the business. The cash flow statement helps users to assess a company’s liquidity, financial flexibility, operating capabilities, and risk. The statement of cash flows is useful because it provides answers to the following important questions: Where did cash come from? What was cash used for? What was the change in the cash balance? Specifically, the information in a statement of cash flows, if used with information in the other financial statements, helps external users to assess: 1. A company’s ability to generate positive future net cash flows, 2. A company’s ability to meet its obligations and pay dividends, 3. A company’s need for external financing, 4. The reasons for differences between a company’s net income and associated cash receipts and payments, and 5. Both the cash and noncash aspects of a company’s financing and investing transactions. What can we learn from SCF that is not already available in the other financial statements? It provides answers to important questions like: Where did cash come from? What was cash used for? What was the change...
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