Premium Essay

Essentials of Cash Flow

In:

Submitted By chenshy
Words 65070
Pages 261
Essentials of Cash Flow
H. A. Schaeffer, Jr. John Wiley & Sons, Inc. Copyright © 2002 by Harold A. Schaeffer, Jr. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, e-mail: permcoordinator@wiley.com. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services, or technical support, please contact our Customer Care

Similar Documents

Premium Essay

Account 1

...Accounting Statements Write a four paragraph answer, citing the text, pretending that your current (or previous) job is its own company. Prepare a simple version of each of the 4 typical financial statements (see page 17) for this pretend company. Although it is not necessary to display statements, state what each of the statements tells you about your job (pretend company). Respond to at least two of your fellow students’ postings. | | This section shows how financial statements are prepared from the analysis of business transactions. The four financial statements and their purpose is: | 1. Income Statement- A summary of an organization's performance as imitated in the effectiveness (or lack of it) of an association over a positive dated. It details the incomes and expenditures of past, that led to the existing revenue or loss, and specifies what may be done to progress the effects. (Brownfield, 2007. Pg. 17). | Income Statement Template | Justifiable Record LabelIncome StatementFor the Year Ending in December 30th, 2013 | Revenues: Services to Clients (Performances) $500,000 Interest Revenue $ 20,000 Total Revenues $520,000Expenses: | Salaries (To Artist) ...

Words: 756 - Pages: 4

Premium Essay

Financial Accounting for Dummies

...statement of cash flows, and they serve two broad purposes: to report on the current financial position of the company, and to show how well the company performs over a period of time. Investors, creditors, and other interested parties rely on such information to find out whether a business is making or losing money, and they depend on financial accountants to help ensure that these statements are materially correct and understandable. Accounting Details in Different Kinds of Financial Statements The three key financial statements are the income statement, balance sheet, and statement of cash flows. All three record the same daily accounting transactions occurring in a business, but each presents the facts slightly differently. • Income statement: The income statement shows a company’s results of operations. Using this statement, you can see if a business has income or loss during the financial period. All the company’s revenue, expenses, gains, and losses appear on this financial statement. • Balance sheet: The balance sheet shows the health of a business from the day it started operations to the specific date of the balance sheet report.Therefore, it reflects the business’s financial position. The balance sheets lists the company’s assets (resources such as cash and inventory), liabilities (claims against the assets), and equity (the difference between assets and liabilities, which reflects the owners’ total investment in the business). • Statement of cash flows: This financial...

Words: 10604 - Pages: 43

Premium Essay

Financial Analysis

...differences in the industries and different measurements conventions affect presentations, and if one of the companies uses the cash basis of accounting, how would that differ from the accrual basis. The team will also be discussing in what ways the elements of the financial statements interact with one another. How might changing one of the financial statements affect the other financial statements? Why is it essential to understand the relationship between the financial statements? In what ways do the elements of the financial statements interact with one another? The objectives of Financial Statement presentation are to show an interrelated financial depiction of an entity's activities, to disaggregate information so that it is useful in evaluating an entity's future cash flows, and to present information about liquidity and financial flexibility of said entity. An organized financial picture means items in financial statements are clear and that the financial statements of an entity complement one another regularly. Financial statement analysis aimed at objectives such as assessing the amount, timing, and uncertainty of future cash flows requires financial information that is disaggregated into reasonably homogeneous groups of items. If items differ economically, users may wish to take that into account differently in predicting future cash flows (2009). An entity’s liquidity is important because it allows for users to gauge an entity’s capability to meet its...

Words: 1197 - Pages: 5

Premium Essay

Polluter Corp. Emission Allowance

...Corp. is a company features in manufacturing household cleaning products. The government allocated the emission allowances (EAs) for each year. According to the Federal Energy Regulatory Commission accounting guidance for EAs, the EAs is recorded as intangible asssets. The Polluter Corp. is going to upgrade its facilities in 2014 in order to decrease the amount of greenhouse gas emitted. However, the corporation still needs additional EAs before upgrades. Hence, the Company spent $3 million to purchase EAs with a vintage year of 2012 from Clean Air Corp. In order to compensate the cost, the Corp sold EAs worthy of $2 million with the vintage year of 2016 to Dirty Chemical Corp. We need to analyze the classification of the statement of cash flows for these two transactions. In addition, we need to differentiate the method of recording these two transactions according to IFRS and U.S. GAAP. Case Analysis: In terms of classification, emission allowances satisfy the definition of an intangible asset. Specifically, they are assets (not including financial assets) that lack physical substance. [FASB, Appendix F, Glossary to SFAS 142, Goodwill and Other Intangible Assets]. Although they have some similarities to financial assets, they do not satisfy the definition of a financial asset. Although they are potentially used in an entity’s operations, they are not inventory. An emission allowance has a service life but its service potential does not diminish over time. Therefore, an...

Words: 681 - Pages: 3

Premium Essay

Financial Statements

...Accounting is essential in every business entity and serves a purpose to all internal and external users. Several business entities use financial statements to make the most efficient, economic decisions and to maintain a balance in the organization. For business entities, financial statements are the snapshots of the business. The financial statements purpose is to summarize and interpret the financial aspect of a business entity for internal users such as managers, marketing professionals, production supervisors, finance directors and company officers to make informed management decisions. For external users the financial statements benefit users such as owners, stockholders, creditors and investors to make quality economic decisions. There are four basic operating statements that are standard accounting procedures for every business to adhere to. The standards were created by the Financial Accounting Standards Board (FASB) (Gale, 2007). The financial statements are building blocks to every successful business entity. Financial sheets are used by internal and external users. Such sheets include: 1) balance sheet, 2) cash flow statement, 3) income statement and 4) statement of changes in owner's equity or stockholder equity sheet. Each statement provides a summation and records specific information. Each account plays an important and crucial role for the overall business entity. A balance sheet is a summation of liabilities, assets, and capital of a business entity...

Words: 732 - Pages: 3

Premium Essay

Accounting 101

...and flows of cash in the business organization which in turn is essential in making decisions. In order for financial statements to provide the necessary information, they have to abide by the principles of understandability, relevance, reliability and comparability (Alexander et al, 2005). The first financial statement under consideration is statement of financial position. It is used to report on assets, liabilities, and capital of an entity. Assets are resources which have economic value attached to them, for example cash, debtors and inventory. Liabilities on the other side include creditors, deferred tax and accruals. Finally, capital is the owner’s equity. Statement of financial position is used to ensure that assets balance with combination of liabilities and capital. Second is the statement of comprehensive income. It provides information on revenues, expenses and profits incurred in a particular period of time. Its major purpose is to help in determining whether the business entity is operating at a profit or loss in a particular trading period. It also serves to reveal the rate of earning per share that is the amount of to be given to each stakeholder. Statement of cash flows is the last financial statement. It shows cash flow activities of a business entity that is operating, financing and investing. In other words, it accounts for cash in hand, cash incurred on expenses and investment activities which are likely to generate cash in future. Statement of cash flows...

Words: 966 - Pages: 4

Premium Essay

Home Depot Financial Statements Part 1

...statements that will assist in analyzing the financial standings of Home Depot from 2007 to 2009. Taking a more in-depth look at the financials statements below, which includes consolidated statements of earning, balance sheet, and cash flow helps better to understand the internal and external use of each statement. As well as analyzing how a company makes decisions based on the financial information on the statements. Consolidated Statements of Earnings Home Depot's income statement is a mirror of their expenditures versus income that will tell if Home Depot is making a profit or in a financial bind. Within the consolidated statements, are net sales that are a tool to deceiver what the company’s cost of goods are and expenses that are a percentage of the net sales. After analyzing the three principal components cost of goods, expenses, and net sales a company can make financials decisions. These decision includes whether to increase or decrease costs or cost of goods based on the companies income for a said period or at the end of the fiscal year. For example, if Home Depot were to make some cuts due to down sales then analyzing cost of goods could help to make up for low sales. A company may pull merchandise from their warehouse or only order essential items to bring down cost of goods expenditures. Looking at Home Depot consolidated statements of earnings for the years 2007 through 2009 had a decrease of cost of goods and net sales (approximately .098%), which left their...

Words: 1039 - Pages: 5

Premium Essay

Cashflow Statement

...Stephen Russell The statement of cash flows is an essential financial statement in the accounting industry. It is one of four principal financial statements required by GAAP. The primary purpose of the statement of cash flows is to provide relevant information about the cash receipts and cash payments of a business during a period. The statement indicates why cash (including short-term investments that are equivalent to cash) changed during the period by reporting net cash provided or used by operating activities, investing activities, and financing activities. This paper will discuss the direct method and indirect method of the statement of cash flows and will also discuss the different sections for the statement of cash flows and how it assists a variety of different users. The statement of cash flows reports cash flows in the following categories: Operating activities which are transactions which affect net income, Investing activities which are transactions that affect investments in fixed assets such as property, plant and equipment, and finally Financing activities which affect the equity and debt of the business. The user assisted most by the operating activities would most likely be accounts payable. This section of the cash flow statement includes cash payments such as inventory, payroll, taxes, interest utilities and rent. The net amount of cash provided (or used) by operating activities is the key figure on a statement of cash flows. The user assisted most by investing...

Words: 448 - Pages: 2

Premium Essay

Direct and Indirect Cash Flows

...Indirect Cash Flows XACC/291 August 20, 2014 Direct and Indirect Cash Flows The direct cash flow method is the method that includes a large amount of detail and organization in comparison to the indirect cash flow method. Direct cash flow statements start out with the three sections that contain cash flow which are operational activities, investments, and financing activities. The operating activities section will include receipts and payments that are related to the day to day operations of the company and normal business transactions for the company. The investing section will include details about the purchase or sale of long-term assets and investments like property. Lastly, the financing activities will have receipts for borrowing money as well as money that has been paid to investors and creditors. Unlike the direct method, the indirect method is a more accrual based method that does not contain as much information. Instead of preparing statements using receipts and paperwork to start a company will use the income statement to get a starting figure for the net income of the company. Then from the net income the accountants will make adjustments for all noncash items so that the statement goes from an accrual based income statement to a statement that only includes cash related items. This method does not require receipts and paperwork to get to a cash flow total because the accountants remove anything that is noncash and everything by default should be cash related...

Words: 415 - Pages: 2

Premium Essay

Financial Statement Paper

...14, 2011 Devina Stocking ACC/280 Salil Sharma Financial Statement Accounting is an essential part of the business world today. Accounting “identifies, records, and communicates the economic events of an organization to interested users” (Weygandt p. 4). Accounting shows organizations what is happening financially within the organizations. Accounting shows where the cash is going and where cash is coming from. Accountants analyze and interpret the financial information on the financial statements using ratios and graphs. The information that is being analyzed are comprised into financial statements. The four basic financial statements include; income statement, statement of retained earnings, balance sheet and statement of cash flows. The income statement “presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time” (Weygandt p. 21). The retained earnings statement “summarizes the changes in retained earnings for a specific period of time” (Weygandt p. 21). The balance statement “reports the assets, liabilities, and stockholders’ equity of a company at a specific date” (Weygandt p. 21). The statement of cash flows “summarizes information concerning the cash inflows (receipts) and outflows (payments) for a specific period of time” (Weygandt p. 21). The income statement, statement of retained earnings and statement of cash flows all depict a period of time whereas the balance sheet is a depiction of a specific date. All...

Words: 682 - Pages: 3

Premium Essay

Financial Statements Paper Part I

...Financial Statements Paper Part I Student ACC 497 8.17.2015 Professor Financial Statement Paper Part I: Home Depot For employees, creditors, and investors, financial statements are essential. They provide insight and information regarding a company’s overall performance. The Securities and Exchange Commission (SEC) requires that all publicly traded companies release their financial statements on a regular basis – quarterly and annually. The annual report consists of three main reports: the consolidated statement of earnings (the income statement), the balance sheet, and the statement of cash flows. The following is a discussion of Home Depot’s 2008 Annual Report. Home Depot is a large, retail chain that specializes in home improvement. The income statement, its importance, what decisions it aids The income statement helps to understand a company’s financial performance. In plain terms, the income statement shows how a company made a profit or suffered a loss during a set period of time. The income statement is generated with a very simple formula of subtracting all Expenses from Revenues, thus arriving at the Profit or Loss. The income statement simplifies everything by merging all of the major expense accounts under one, more generic label. This simplicity aids any users of the income statement to have easy comprehension, and have a higher level of overview of the operation’s performance. Investors are able to forecast probable stock prices rising and...

Words: 1224 - Pages: 5

Premium Essay

Cash Flows

...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...

Words: 344 - Pages: 2

Premium Essay

No File

...public offering.| d.|proxy fight.| ANS: C DIF: E REF: 5.2 Primary Markets and Issuing New Securities 2. Which statement about common shareholders is incorrect? a.|Shareholders only have a residual claim.| b.|Shareholders have precedence over all other claimholders in the case of bankruptcy.| c.|Shareholders have a voting right.| d.|Shareholders are the ultimate owners of a corporation.| ANS: B DIF: E REF: 5.1 The Essential Features of Preferred and Common Stock 3. What is the market capitalization of a company? a.|The market value of all outstanding debt.| b.|The book value of the company’s debt.| c.|The market value of all outstanding shares.| d.|The book value of the company’s total equity.| ANS: C DIF: E REF: 5.1 The Essential Features of Preferred and Common Stock 4. Which of the following is not a difficulty associated with valuing common stock? a.|Common stock does not have a specific expiration date.| b.|The required rate of return is difficult to estimate. | c.|Common stock does not promise a fixed cash flow stream.| d.|All of the above are considered difficulties associated with valuing common stock.| ANS: D DIF: E REF: 5.4 Stock Valuation 5. Which of the following stock exchanges has the most strict listing requirements? a.|American Stock Exchange| b.|NASDAQ| c.|New York Stock Exchange| d.|Pacific Stock Exchange| ANS: C DIF: E REF: 5.3 Secondary Markets for Equity Securities 6. Bavarian Sausage, Inc. has preferred...

Words: 5914 - Pages: 24

Premium Essay

Mcdonald's Analysis

...decision is essential for an investor. There are cases where a stock may be overvalued or undervalued. It is not worthwhile to buy and hold an overvalued stock as they will not generate any positive return to the investor and vice versa in case of an undervalued stock. It is essential to estimate the value of a company based on their future growth and earning potential. As a shareholder, it is essential to know the return that an equity investor will generate by investing in a company. Free Cash Flow to Equity (FCFE) provides the actual return that equity shareholder can expect from the company. Six-year projection of income statement, balance sheet and cash flow statement are being made to determine the FCFE. Future FCFE is used for the determining the value of the firm. It indicates about the intrinsic value of the company based on which an investor can determine whether a stock is undervalued or overvalued. In this case, McDonald’s performance is expected to fall during 2015 and 2016. There is an expectation of slow revamps from 2017 in a stable phase. The determined value clearly indicates that the stock is currently overvalued, and it will not be a worthy decision to invest in this stock. Key Details of the Valuation Model It is essential to make an investment in a stock only after making a detailed analysis of the company and after fundamental analysis. In this case, determining the intrinsic value of share based on the future earnings is essential as it indicates...

Words: 2076 - Pages: 9

Premium Essay

Question Paper

...shareholders’ meeting. c. initial public offering. d. proxy fight. ANS: C DIF: E REF: 5.2 Primary Markets and Issuing New Securities 2. Which statement about common shareholders is incorrect? a. Shareholders only have a residual claim. b. Shareholders have precedence over all other claimholders in the case of bankruptcy. c. Shareholders have a voting right. d. Shareholders are the ultimate owners of a corporation. ANS: B DIF: E REF: 5.1 The Essential Features of Preferred and Common Stock 3. What is the market capitalization of a company? a. The market value of all outstanding debt. b. The book value of the company’s debt. c. The market value of all outstanding shares. d. The book value of the company’s total equity. ANS: C DIF: E REF: 5.1 The Essential Features of Preferred and Common Stock 4. Which of the following is not a difficulty associated with valuing common stock? a. Common stock does not have a specific expiration date. b. The required rate of return is difficult to estimate. c. Common stock does not promise a fixed cash flow stream. d. All of the above are considered difficulties associated with valuing common stock. ANS: D DIF: E REF: 5.4 Stock Valuation 5. Which of the following stock exchanges has the most strict listing requirements? a. American Stock Exchange b. NASDAQ c. New York Stock Exchange d. Pacific Stock Exchange ANS: C DIF: E REF: 5.3 Secondary Markets for Equity Securities 6. Bavarian Sausage, Inc. has preferred stock outstanding. This stock pays...

Words: 5880 - Pages: 24