ch 5 SCF - 5-1Ch 5 Statement of Cash FlowsLearning...

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Unformatted text preview: 5-1Ch 5 Statement of Cash FlowsLearning Objectives1.Describe the circumstances in which the cash flow statement is a particularly important companion of the income statement.2.Outline the structure of and information reported in the three main categories of the cash flow statement: operating, investing, and financing.3.Compute cash flow from operations using either the direct or the indirect method.4.Prepare a complete statement of cash flows and provide the required supplemental disclosures.(continues)5-21.Assess a firm’s financial strength by analyzing the relationships among cash flows from operating, investing, and financing activities and by computing financial ratios based on cash flow data.2.Demonstrate how the three primary financial statements tie together, or articulate, in a unified framework.3.Use knowledge of how the three primary financial statements tie together to prepare a forecasted statement of cash flows.Learning Objectives5-3Describe the circumstances in which the cash flow statement is a particularly important companion of the income statement.OBJECTIVE 1What good is a cash flow statement?•It explains the change during the period in cash and cash equivalents.•Sometimes earnings fail.•Everything is on one page.•It is used as a forecasting tool.–A pro forma cash flow statement is a prediction of what the actual cash flow statement will look like in future years if the operating, investing, and financing plans are implemented.5-4Outline the structure of and information reported in the three main categories of the cash flow statement: operating, investing, and financing.OBJECTIVE 2•A cash equivalent is a short-term, highly liquid investment that can be converted easily into cash.•To qualify as a cash equivalent, an item must be:• Readily convertible into cash• So near to its maturity (i.e., a short maturity of three months or less from the date of acquisition) that there is insignificant risk of changes in value due to changes in interest rates5-5Cash Flow Activities•Operating activities include those transactions and events that enter into the determination of net income.•Investing activitiesinclude those transactions and events that involve the purchase and sale of financial instruments not intended for trading purposes; property, plant, equipment; and other assets not generally held for resale, as well as the making and collecting of loans....
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This note was uploaded on 12/07/2009 for the course ACCT ACCT 203 taught by Professor Kim during the Fall '09 term at HKUST.

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ch 5 SCF - 5-1Ch 5 Statement of Cash FlowsLearning...

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