chapter 7 book notes

chapter 7 book notes - Statement of Cash Flows Relevance of...

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Statement of Cash Flows Relevance of Cash -Cash is the most liquid of assets -Contrast: accrual accounting and cash basis accounting -net cash flow is the end measure of profitability. ..that is what repays loans, expands facilities, pays dividends, etc Provide insight into: Feasibility of financing capital expenditures and possible sources of such financing. Sources of cash to finance an expansion in the business. Dependence of the firm on external sources of financing (such as debt or equity). Future dividend policies. Ability to meet future debt service requirements. Financial flexibility, that is, the firm's ability to generate sufficient cash so as to respond to unanticipated needs and opportunities. Insight into the financial habits of management and indications of future policies. Signals regarding the quality of earnings. Reporting by Activities SCF reports cash receipts and cash payments by: -Operating activities: earning-related activities -Investing activities: means of acquiring and disposing of noncash assets that are expected to generate income -Financing activities: means of contributing, withdrawing, and servicing funds to support business activities. ..i.e. borrowing/repaying funds w/ bonds and loans Constructing the Cash Flow Statement
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chapter 7 book notes - Statement of Cash Flows Relevance of...

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