Lecture09 2010.10.05 PreClass - Lecture 9 Statement of Cash...

Lecture 9
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Statement of Cash Flows
and Cash Flow Analysis

Announcements
• Those requesting absences should have received an
email with date/time/location of the make-up exam
• Exam #1: 10/14, 6-8pm
• Locations: Alphabetical by Last Name
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A to F JMHH G06
G to Jiang SHDH 350
Jivani to Levit SHDH 351
Leylegian to Saborio CHEM 102
Saed to Yoo COHN G17
Yoshida to Zhu COHN 402

Announcements
• Recitation this week:
P13-2, E13-9, CP13-2
Any other questions
• No recitations next week (Oct 15)
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• TAs holding office hours next week.
• Corrected some typos in solutions to Practice Exam

Today’s Class
• Recap of Last Class
• Finish Simpson Corp example
• Direct Method Overview & Cash Flow Calculations
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Recap: Statement of Cash Flows
Purpose of Statement of Cash Flows is to reconcile why Net Income is different
than change in Cash balance
Stated differently, the Statement shows us how the change in Cash balance
materialized
The Statement of Cash Flows is broken down into three sections:
Cash Flows from Operations
Cash Flows from Investing
Cash Flows from Financing
What do we learn by partitioning cash flows this way?

Statement of Cash Flows: Cash Flows from Financing
Cash Flows from Financing include all cash flows in and out related to
Obtaining debt (acting as a borrower)
Issuing or repurchasing stock
Paying dividends
Accounts Payable are considered to
generate from normal business
operations, so they show up in the
Paying off principal related to debt
Cash Flows from Operations section
Interest expense payments do not
belong in this section. They are
considered part of normal business
operations, so they show up in the
Cash Flows from Operations section

Statement of Cash Flows: Cash Flows from Investing
Cash Flows from Investing include cash flows in and out related to
Purchasing or selling longer-term productive assets (land, equipment, etc.)
Purchasing or selling investment securities (stocks, derivatives, bonds, etc.)
Lending (i.e. providing loans)

Method of Calculation
• Cash Flows from Financing and Investing
– Direct Method : analyze all transactions that affect the cash
account; then group the transactions into common activities
and report how these activities affected cash
• Cash Flows from Operations
– Direct Method : analyze all transactions that affect the cash
account; then group the transactions into common activities
and report how these activities affected cash.