Chapter 13_Notes - Chapter 13 - statement of cash flows...

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Chapter 13  - statement of cash flows 18/02/2009 20:06:00 Understanding the business The cash flow statement focuses attention on a firm’s ability to generate cash  internally, its management of current assets and current liabilities, and the  details of its investments and its external financing.  Positive cash flows permit a company to take advantage of market  opportunities, pay dividends to owners, expand its operations, and replace  needed assets.  Wall Street analysts consider cash flow an important indicator of a company’s  financial health. Learning Objective 1 - to classify cash flow statement items as part of net  cash flows from operating, investing, and financing activities. Cash and cash equivalents Short-term Highly liquid investments Little risk Cash flows from operating activities      – cash inflows and outflows directly related  to earnings from normal operations; cash effects of elements of net income Inflows o Cash received from revenues o Cash received from customers o Cash received from dividends and interest on investments Outflows o Cash paid for expenses o Cash paid for purchase of goods for resale and services (electricity) o Cash paid for salaries and wages o Cash paid for income taxes
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o Cash paid on interest on liabilities Cash flows from investing activities       – cash inflows and outflows related to the  acquisition or sale of productive facilities and investments in the securities of other  companies;  Cash effects of the acquisition and disposition of assets (other than inventory  and cash equivalents). When these assets later are sold, any cash receipts from their disposition  also are classified as investing activities Inflows o Sale of operational asset o Sale of investments o Collections of loans o Cash received from sale or disposal of PPE o Cash received from sale or maturity of investments in securities Outflows o Purchase of operational assets o Purchase of investments o Loans to others o Purchase of PPE o Purchase of investments in securities Cash Flows from Financing activities –
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This note was uploaded on 02/20/2009 for the course AEM 221 taught by Professor Little,j. during the Fall '08 term at Cornell University (Engineering School).

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Chapter 13_Notes - Chapter 13 - statement of cash flows...

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