Lec12 - Chapter 13 Statement of Cash Flows Key Learning...

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Chapter 13: Statement of Cash Flows
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Key Learning Objectives Classifications of the statement of cash flows Relationships to balance sheet and income statement Indirect method to prepare cash flows from operating activities Prepare cash flows from investing activities and financing activities Interpreting different cash flow categories
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Slide 3 Cash Currency Cash Equivalents Short-term, highly liquid investments. Readily convertible into cash. So near maturity that market value is unaffected by interest rate changes (i.e., less than 3 months to maturity). Classifications of the Statement of Cash Flows
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Slide 4 Classifications of the Statement of Cash Flows Operating Activities Cash inflows and outflows directly related to earnings from normal operations. Investing Activities Cash inflows and outflows related to the acquisition or sale of productive facilities and investments in the securities of other companies. Financing Activities Cash inflows and outflows related to external sources of financing (owners and creditors) for the enterprise.
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Slide 5 Cash Flows from Operating Activities Cash Flows from Operating Activities Inflows Cash received from: Customers Dividends and interest on investments + Outflows Cash paid for: Purchase of goods for resale and services (electricity, etc.) Salaries and wages Income taxes Interest on liabilities _
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Slide 6 Direct Method vs. Indirect Method Two Formats for Reporting Operating Activities Reports the cash effects of each operating activity Direct Method Starts with accrual net income and converts to cash basis Indirect Method Note that no matter which format is used, the same amount of net cash flows from operating activities is generated.
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Slide 7 Cash Flows from Investing Activities + Cash Flows from Investing Activities Inflows Cash received from: Sale or disposal of property, plant and equipment Sale or maturity of investments in securities _ Outflows Cash paid for: Purchase of property, plant and equipment Purchase of investments in securities
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Slide 8 Cash Flows from Financing Activities + _ Cash Flows from Financing Activities Inflows Cash received from: Borrowings on notes, mortgages, bonds, etc. from creditors Issuing stock to owners Outflows Cash paid for: Repayment of principal to creditors (excluding interest, which is an operating activity) Repurchasing stock from owners Dividends to owners
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(in thousands) Three months ended (unaudited) March 31, 2007 Cash flows from operating activities: Net income 5,768 $ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,726 Changes in assets and liabilities: Accounts receivable (1,967) Inventory (1,917) Prepaid expense (1,677) Accounts payable (3,320) Accrued expenses (744) Net cash provided by operating activities (2,131) Cash flows for investing activities: Purchases of property, plant and equipment (1,736) 2 Purchase of short-term investments (802) Net cash provided by investing activities (2,536) Cash flows from financing activities:
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