2504c_1108 - BUSI 2504c - Essentials of Business Finance...

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Unformatted text preview: BUSI 2504c - Essentials of Business Finance Monday, November 8, 2010 18:15-18:45 quiz #4 3 financial statements 3 rd hour (optional) midterm solutions chapter 3: financial statements 3.1 - Statement of Cash Flows 3.2 - Standardized Financial Statements 3.3 - Ratio Analysis (review) 3.4 - Du Pont Identity 3.5 - Using Financial Statement Information BUSI 2504c Monday, November 8, 2010 2 / 37 3.1: sources and uses of cash Sources Cash inflow- occurs when we sell something Decrease in asset account Increase in liability or equity account Uses Cash outflow- occurs when we buy something Increase in asset account Decrease in liability or equity account BUSI 2504c Monday, November 8, 2010 3 / 37 3.1: statement of cash flows Statement that summarizes the sources and uses of cash Changes divided into three major categories Operating Activity- includes net income and changes in most current accounts Investment Activity- includes changes in fixed assets Financing Activity- includes changes in notes payable, long-term debt and equity accounts as well as dividends BUSI 2504c Monday, November 8, 2010 4 / 37 3.1: statement of cash flows (table 3.3, p.59) PRUFROCK CORPORATION 2006 Statement of Cash Flows ing activities ncome $ 363 eciation 276 ase in accounts payable 32 ase in accounts receivable 23 ase in inventory 29 ash from operating activity $ 619 ent activities: asset acquisitions $ 425 ash from investment activity $ 425 BUSI 2504c Monday, November 8, 2010 5 / 37 3.1: operating, financing, and investing activities FINANCING ACTIVITIES OPERATING ACTIVITIES shareholders suppliers customers CASH buy shares dividends accounts receivables cash buy cash sale sale on credit receive payment non-cash transactions accounts payables pay invoice buy on credit bondholders/ banks b u y b o n d s in te re s t/p rin c ip a l INVESTING ACTIVITIES fxed assets buy salvage cash transactions employees salaries BUSI 2504c Monday, November 8, 2010 6 / 37 3.1: sources and uses of cash - example During the year, Douglass Industries decreased the accounts receivable by $230, decreased the inventory by $150, and increased the accounts payable by $110. These three changes represent a of cash. answer : $490 source BUSI 2504c Monday, November 8, 2010 7 / 37 3.1: sources and uses of cash - example 2 During the year, Dougs Bakery decreased its accounts receivable by $50, increased its inventory by $100, and decreased its accounts payable by $50. For these three accounts, the firm has a net: answer : $100 use of cash BUSI 2504c Monday, November 8, 2010 8 / 37 3.1: sources and uses of cash - example 3 Curly Industries generated net income of $980 for the year. The depreciation expense was $120 and dividends paid were $250. The accounts payable decreased by $60, accounts receivable decreased by $20, inventory increased by $80, and net fixed assets increased by $360. What is the net cash flow from operating activity?...
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2504c_1108 - BUSI 2504c - Essentials of Business Finance...

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