Lecture08 2010.10.03 Preclass

Lecture08 2010.10.03 Preclass - Lecture 8 Statement of Cash...

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Lecture 8 Statement of Cash Flows
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Announcements • If you have requested an excused absence for Exam 1 you will be emailed the date and time of the make-up exam Tues • HW#1 due Friday, 9am – Good indicator of exam performance – No financial statements on the exam • Exam #1 next Thursday, 10/14, 6pm-8pm – Covers Lectures 1 through 9 – Calculator, a single 8.5x11 double-sided page of notes • No class next week
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Goals of Today’s Class • Understand the three sections of the Statement of Cash Flows • Learn how the Statement of Cash Flows is Prepared
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Business Background Positive cash flows permit a company to…
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Purpose of the Statement of Cash Flows To report about how the entire firm’s operating, investing, and financing activities have affected its cash balances during the period covered by the statement In this context, “Cash” is defined as cash balances plus marketable securities with maturities of three months or less The cash flow statement should display all of the cash inflows within each of the three categories 1. Operations 2. Investing 3. Financing Note: Information on cash flow statement is not “new” over and above balance sheet and income statement – Its value comes from the way information is organized
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Change in Cash ($887) Why?… Net Income ($2,278.5)
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Differences between Change in Cash and Net Income Net Income almost never reflects the actual change in cash-on-hand Accruals change net income without changing cash Purchases and sales can change cash without changing net income Obtaining or paying off debt can change cash without changing net income Issuing or repurchasing equity can change cash without changing net income
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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?
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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 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 Paying off principal related to debt
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Statement of Cash Flows: Cash Flows from Financing Example: X Corp. issues 10,000 shares of common stock for $100,000. It also pays off $40,000 in outstanding long-term debt, and issues dividends of $10,000 Net Cash Flows from Financing = ???
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Increase in cash Decrease in cash (in parentheses) Why does employee stock option exercise increase cash?
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This note was uploaded on 12/18/2010 for the course ACCT 101 taught by Professor Armstrong during the Fall '09 term at UPenn.

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Lecture08 2010.10.03 Preclass - Lecture 8 Statement of Cash...

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