Chapter 5 Help Notes

Chapter 5 Help Notes - Chapter 5 Statement of Cash Flows 1....

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Chapter 5 Statement of Cash Flows 1. In the face of losses, positive cash flow means a company can continue to honor its obligations for near term (short-term). 2. For high growth companies, positive income is no guarantee that cash flows will be sufficient enough to meet current liabilities. 3. A statement of cash flows explains the change in cash & cash equivalents (CE); CEs are defined as investments with original maturities or less; acquired date and issue date are not necessarily the same. 4. There are three categories of cash flows: operating, investing, and financing. Operating Activities Cash receipts from: Cash payments for: Sale of good or services Inventory purchases Sale of trading securities (usually but not always) Wages and salaries Interest revenue Taxes Dividend revenue Interest expense Related items: income statement; current operating assets and liabilities, and come Other expenses (utilities, rent) Purchase of trading securities (usually but not always) Investing Activities Cash receipts from: Cash payments for: Sale of plant assets Purchase of plant assets (not held for resale) Sale of a business segment Purchase of non-trading securities Sale of non-trading securities Making loans to other entities Collection of principal on loans Related items: PPE; long-term investments, other LT assets Financing Activities: Cash receipts from: Cash payments for: Issuance of stock Cash dividends Borrowing (notes, mortgages, notes) Repayment of loans Repurchase of treasury stock Related items: ST & LT debt, common stock, treasury stock, and dividends
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5. The net amount of cash provided or used by operating activities is the key figure of S of CF and is the bottom line of a S of CF. The normal pattern of inflows (+) or outflows (-) of cash reported in the S of CF is as follows: Cash from operating activities: + Cash from investing activities: - Cash from financing activities: + or – 6. In normal times, cash from investing activities is usually negative because companies use cash to expand. Positive CF from investing means a company is
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This note was uploaded on 07/10/2011 for the course BUSINESS 550 taught by Professor Backer during the Spring '11 term at Limestone.

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Chapter 5 Help Notes - Chapter 5 Statement of Cash Flows 1....

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