...1. Statement of Cash Flow Operating Activities Net Income: 253,584 Adjustments Non-cash adjustments: Depreciation 120,000 Change in Working Capital: Change in Accounts Receivable (245,840) Change in Inventories (429,140) Change in Accounts Payable 35,800 Change in Accruals 95,040 Net Cash Provided by Operating Activities (544,120) Investing Activities Cash Used to Acquire Fixed Assets (17,050) Change in Short Term Investments 51, 632 Net Cash Provided by Investing Activity 34,582 2. Free Cash Flow 502,640(1-0.4) = 502,640 (0.6) = 301,584 NOPAT FCF = NOPAT - NOWC - Long Term Capital 301,584 - (14,000 + 878,000 + 1716480 ) - (359,800 + 380,000) = -1,567,096 3. Uses of Free Flow for 2011 1. Pay interest to debtholders. 80(1-.40) = 48 2. Repay debt holders. (359,800+10000000)-(500,000-720,000)= 1139800 3. Pay dividends to debtholders. 250,000*.220=55,000 4. Repurchase stock from shareholders. 460,000-1680936=1220936 5. Buy short-term investments. 71,632-20,000=51,632 4. For 2011 Find the Following- Current Ratio: current assets/current liabilities = 2680112/1039800 = 2.6 Debt Ratio: liabilities/assets = 1539800/3516952 = .44 Profit Margin on Sales: Income/sales = 253,584/7035600 = 0.036 Return on Total Assets: 235,584/3,516,952 = 0.072 Price/earnings: 12.17/1.01 = 12.049 Earnings per Share: net income/# of shares outstanding = 253,584/250,000 = 1.014 Financial Analysis Liquidity...
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...Subject: Statement of Cash Flow CC: Learning Team A The Carpino Company is pleased to announce that the organization has experience an exciting first year. This memo and the attached cash flow statement summarize the important details of Carpino’s statement of cash flows for the period ending January 31, 2007. It will provide the shareholders reasons for the difference between net income and net cash used by operating, investing, and financing activities. The cash flow statements will also determine Carpino’s ability to generate future cash flows, and to pay dividends and meet obligations. Carpino’s cash flow statement shows a net loss because expenses are $30,000 higher than revenues for the end of year. However, depreciation expense of $55,000 must be subtracted from the expenses since it is not an actual cash item expense. The depreciation expense is calculated in the operating activities and result in a positive net income of $20,000. In preparing the cash flow statement, items that do not affect physical cash income must be adjusted into the original net income figure. While GAAP requires us to accrue for items in the current year, the cash flow is only a view of actual cash in and cash out. The end result is a positive aspect for Carpino Company because the company has a sufficient surplus of revenue. The primary reason Carpino has an increase in cash is based on financing activities. During the 2007 year Carpino issued $420,000 of capital stock. Cash flow from financing...
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...In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement,[1] is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. 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.[1] As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements. People and groups interested in cash flow statements include: * Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses * Potential lenders or creditors, who want a clear picture of a company's ability to repay * Potential investors, who need to judge whether the company is financially sound * Potential employees or contractors, who need to know whether the company will be able to afford compensation * Shareholders of the business. Contents [hide] * 1 Purpose * 2 History & variations * 3 Cash flow activities o 3.1 Operating activities o 3.2 Investing...
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...esACTG3110 Chapter 5: Statement of Cash Flows Introduction Objectives of the SCF •Companies are required to include statement of cash flows (SCF) as part of their F/S. •Historical CF are often used as indicator of amount, timing, and uncertainty of future CF. •The objective of the SCF is to disclose the historical cash flows of the enterprise during the reporting period for both feedback and predictive purposes. Classification and Organization The SCF is classified on the basis of the type of cash flow: •Operating activities are the principal revenue-producing activities of the enterprise and the related expenditures. * Cash inflow from operations is measured as cash received from customers or clients. * Cash outflows are those disbursements for operating activities, such as cash paid for inventories, wages and salaries, income taxes, and rent and other overhead costs. * Operating activities relate to net earnings (rev. + exp.), not comprehensive income. * If the company has recognized specific amounts that are part of other comprehensive income, these transactions or events are not included in operating activities. * Therefore, net earnings is the reference point for operating activities on the SCF. •Investing activities are those activities that relate to long-term assets and investments. * The acquisition and disposal of property, plant, and equipment; intangible assets; other assets; and investments are all included in this section...
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...Chapter: Statement of Cash Flows A statement of cash flows can provide financial users with cash-basis information about a company’s cash receipts and cash payments during a period. In the statement of cash flows, cash refers to cash and cash equivalents. Cash equivalents are defined as highly liquid investments that can be readily convert to cash with little risk of loss. Examples of cash equivalents are market funds, Treasury bills (T-bill), and commercial paper. Cash flows are primarily classified into three categories: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Operating activities include income statement items. Investing activities include long-term asset items. Financing activities include long term liability and equity items. There are two methods available to a company to report cash flows from operating method. One is called direct method. Another one is called indirect method. In Dell FY 12 annual report, it used the indirect method to report the cash flows from the operating activities. Under the indirect method, the calculations of the net cash flows from operating activities start with net income. The company must eliminate the effects of income statements transactions that do not increase or decrease the cash. For example, Dell reported $3,492 million net income and $ 327 million accounts payable. The accounts payable were operating expenses reported in the income statement. However...
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...Statement of cash flows Statement of cash flows helps users in at least 4 ways. • It can help users predict whether a firm will have positive future net cash flows • It can help users determine a firm’s need for external financing and its ability to pay debts and dividends. It gives users information about current cash flow, possible future cash needs, and borrowed cash that must be repaid in the future • The statement also helps users assess a firm’s overall financial health. The combination OT, INV., FIN cash flows can help a user predict whether a firm will experience growth or whether it is in decline. • The statement focuses the user on cash by reconciling the firm’s accrual net income to the change in the cash balance Operating activities • Activities that a business performs from day to day in its primary profit seeking activity. They generate revenues and result in expenses, and use the company’s current assets and current liabilities. Investing activities • Consist of the long-term assets purchases or sold by a company Financing activities • Include all changes in external financing (e.g. issuing debt, obtaining bank loans, issuing common stock) Direct and Indirect method • Are different ways of preparing the cash flow statement’s operating activities Direct Method • Requires the accountant to compute all operating cash inflows and outflows, and to provide a supplemental schedule that is the cash flows statement indirect method presentation ...
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...CHAPTER 23 Statement of Cash Flows EXERCISE 23-1 E23-1 (Classification of Transactions) Springsteen Co. had the following activity in its most recent year of operations. (a) Pension expense exceeds amount funded. (b) Redemption of bonds payable. (c) Sale of building at book value. (d) Depreciation. (e) Exchange of equipment for furniture. (f) Issuance of ordinary shares. (g) Amortization of intangible assets. (h) Purchase of treasury shares. (i) Issuance of bonds for land. (k) Increase in interest receivable on notes receivable. (j) Payment of dividends. (l) Purchase of equipment. a) Investing activity. b) Financing activity. c) Investing activity. d) Operating—add to net income. e) Significant noncash investing and financing activity. f) Financing activity. g) Operating—add to net income. h) Financing activity. i) Significant noncash investing and financing activity. j) Financing activity. k) Operating—deduct from net income. l) Operating—add to net income. 1. The statement of cash flows is divided into four activities. A. True B. False There are three activities comprising the statement of cash flows. 2. The difference between the direct method and the indirect method centers around the operating activities section of the statement of cash flows. A. True B. False The two methods only differ in the preparation of the operating activities section of the statement. 3. Only the comparative...
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...Statement of Cash Flows Paper ”What is the purpose of the statement of cash flows? What information does it provide”(Kieso, Weygandt, & Warfield, p. 1253)? Companies provide four statements to abide by the Generally Accepted Accounting Principles (GAAP). These financial statements are the income statement, equity statement, the balance statement, and the statement of cash flows. Each statement provides different types of information necessary to make a knowledgeable decision about a investing in company. The statement of cash flows is useful because it ” provides information on a cash basis about an organization operating, investing, and financing activities” (Kieso, Weygandt, & Warfield, p. 1213). Each of these methods is important to users and provides different information. It also provides information on the inflow and outflow of cash during an accounting period. The statement of cash flows presents this information in either the indirect method or the direct method. The statement of cash flows uses is to provide information about its ability to generate cash in the future. This information may come from three sources the income statement, the balance sheet, and select cash transaction data. The income statement provides the operating activities cash flow. The balance sheet provides the changes in assets, liabilities, and equities. It also shows how the company pays dividends and meets it financial obligations to creditors and investors. Select cash transactions have...
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...Statement of Cash Flows It was the fall of 2011 and I was reporting sales close to $10,000 for the month of November, thanks in part, to the holiday rush. On the surface, it was pretty good for a first-year online “micro” business selling custom tableware and home decor, run by one person on a part-time basis. As I was caught up on the selling-to-customers aspect of my business, I neglected to pay attention to the inflows and outflows of cash until it was time to file tax returns the following spring. I learned that the sales revenue generated did not necessarily mean that I had that amount of cash to spend. Had I realized this sooner, I would not have signed a 6 month lease on a laser cutter I found to have trouble paying for in the following months. It was trial by fire and I learned the importance of closely monitoring cash flows. As a small business owner, one can imagine that the importance on cash flow are orders of magnitude greater for businesses where millions or even billions of dollars are on the line. The Statement of Cash Flows allow companies to understand the “why’s” and the “how’s” of the amount of cash at the beginning of the period came to be the amount at the end of the period. The cash flow statement has three main areas. Cash Flows from Investing Activities are those cash flows that are involved in activities that finance the business, such as a purchase or sale of investment in securities. The Cash Flows from Financing Activities are the cash flows...
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...that the aim of cash flow reporting is to explore ways in which the underlying liquidity of a reporting entity can be revealed in accounting terms. Profit is regarded as an indicator of financial success, but, as anyone running a business will tell you, cash is king. The measurement of profit is usually based on a mixture of factual transactions and unavoidable subjective accounting judgments. “The stock market prefers the fantasy of smooth growth to the reality of fluctuating operational performance. It falls to the creative accountant to ensure that those fluctuations are removed by hoarding profits in years of plenty for release in years of famine... Just like sin, cash flow will eventually find a company out.” So wrote Ian Griffiths in his bestseller Creative Accounting . The Financial Analysis paper comes as a bit of a shock to some candidates, especially the area of consolidations. From time to time there is no balance sheet or income statement to prepare, but a group cash flow statement may be required. Sometimes cash Francis Braganza explains how to prepare a cash flow statement, using November 2005’s question as an example, with dates advanced two years. Financial analysis Group adjustments 1 A dividend received from an associate by a parent is an inflow (investing activities: second category). 2 A dividend paid to a minority interest by a subsidiary is an outflow (financing activities: third category). 3 Net cash paid out to acquire...
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...Statement of Cash Flows Statement of Cash Flows Accounting is the major means of organizing and summarizing information regarding economic activities. The information provided by the accounting practices through financial reporting helps decision makers make appropriate business decisions. The statement of cash flows is one of the three primary financial reports that companies should include in external financial reports to its users according to the generally accepted accounting principles (GAAP). The statement of cash flows provides pertinent information to its users. The Primary Purpose of Cash Flows “The primary purpose of the statement of cash flows is to show the changes in cash of a company from one period to the next” (Kieso, Weygandt & Warfield, 2007, p. 1121). The statement of cash flows focuses on the sources and uses of cash during a period. Another important purpose of the statement of cash flows is to explain the changes in cash and provide information related to the company’s operating, investing and financing activities to provide means for a company to implement strategies in short-term analysis and cash planning of the business for future benefit. Information Provided by Cash Flows “The statement of cash flows provides information to help creditors, investors, and other stakeholders to assess the company’s ability to generate future cash flows, assess the company’s ability to meet obligations and pay dividends, to understand the reasons for...
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...STATEMENT OF CASH FLOWS Cash flows are critical to a company’s success because among other things they measure the ability of a business to generate cash internally. Positive cash flows allow a company to meet its obligations with creditors and suppliers, take advantage of investment opportunities, replace assets, negotiate better pricing in purchases, and pay dividends; all these without the need of incurring in external financing. Net cash flow needs to be distinguished from Net Income, which includes accounts receivable, accounts payable and other items for which payment has not been received or made (Accruals). Cash flow is used to assess the quality of a company's income; that is, how liquid it is, which can indicate whether the company is positioned to remain solvent. Net income (Income statement) measures a company’s financial results after business operations and financing activities, and it is crucial for investors as this is the statement that determines if overall a business is profitable or not. But because most companies use the accrual accounting method (which I will not explain on this paper), the income statement may not reflect actual changes in cash position. This is why investors should not rely only on this statement to make decisions as should use it only as one “indicator” of revenues minus costs, but it does not give the whole picture of a company’s financial health. It is important for investors and management to analyze the four main financial statements...
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...How to analyze a cash flow statement Once you have constructed a cash flow statement, you will be much closer to understanding the financial position of your company. While a balance sheet and income statement are tools for management, without a cash flow statement they are limited barometers and may even be misleading. Operating Activities The cash flow statement will tell you where money came from and how it was used. When analyzing cash flow, the first place to look is the cash flow from operating activities. It tells you whether the firm generated cash or whether it needs a cash infusion. A few periods of negative cash from operating activities is not by itself a reason for alarm if it is based on plans for company growth or due to a planned increase in receivables or inventories. However, if a negative cash flow from operating activities is a surprise to managers and owners, it may be undesirable. Over time, if uncorrected, it can foretell business failure. Managers and owners should pay particular attention to increases in accounts receivable. The cash flow statement gives the true picture of the account. A large increase in accounts receivables may warrant new billing or collection procedures. Investing Activities The cash flow statement puts investing activities into perspective. At one glance, you can see whether or not a surplus in operations is being used to grow the company. A lack of investing activities, which is few purchases of new equipment or other assets...
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...Company From: Accounting Team Z Date: November 18, 2010 Re: Cash Flows The Carpino Company’s Accounting Team is pleased to announce that the organization has experienced a very productive and exciting first year. This memo and the attached cash flow statement summarize the important details of Carpino’s statement of cash flows for the period ending January 31, 2007. The information from this financial statement will provide Carpino’s shareholders reasons for the difference between net income and net cash used by operating, investing, and financing activities. The cash flow statements will also determine Carpino’s ability to generate future cash flows, and to pay dividends and meet obligations (Kimmel, Weygandt, & Kieso, 2007). Cash Flow Activities The statement of cash flows provide cash receipts, cash payments, and net change in cash resulting from operating, investing, and financing activities during a period (Kimmel, Weygandt, & Kieso, 2007). How Net Loss Affects Cash Flow Carpino’s cash flow statement shows a net loss because expenses are $30,000 higher than revenues for the end of year. However, depreciation expense of $55,000 must be subtracted from the expenses since it is not an actual cash item expense. The depreciation expense is calculated in the operating activities and result in a positive net income of $20,000. In preparing the cash flow statement, items that do not affect physical cash income must be adjusted into the original net income figure...
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...jointly to establish a global standard that will guide the organization and presentation of information in the financial statements. The boards goal is to improve the usefulness of the financial information to the users of its’ financial statements and to help users in making their decision. The key financial statement that this paper will focus on is the statement of cash flows. One of the key benefits of the statement of cash flows is its’ comparability. This is due to the fact that although there are differences in accounting frameworks in the world cash flow statements are produced on almost the same basis. When preparing the statement of cash flows under IFRS and U.S. GAAP there are some differences, however most of the content and format is similar. The following comparison will focus on the similarities and significant differences between U.S. GAAP and IFRS related to the statement of cash flows. A cash flow statement is a financial report that describes the sources of a company’s cash and how that cash was spent over a specified time period. It is useful for determining the short-term viability of a company, particularly its’ ability to pay bills and is generally required by IFRS and U.S. GAAP. One similarity between IFRS and U.S. GAAP in creating the statement of cash flows are both utilize the same format choices and categories. The cash flow statement may be prepared using either the direct or indirect methods. They also utilize the same three categories: operating...
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