W10_lecture_present_slides

W10_lecture_present_slides - Week 10: Cash Flow Statement...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Week 10: Cash Flow Statement Text: Ch.8 (LO 1-5) Lecture Exercises: E8.2, E8.4, E8.11, CFS extracts Self-Study Exercises: P8.1, P8.2, P8.7, P8.8, P8.9 Announcements: By now, you must have completed at least Task 1 of the group assignment If you wish to report any problems related to the equitable contribution of group members then this is your last chance Outline Cash flow information What is cash? What is cash equivalents? The purpose and format of cash flow statement (CFS) Calculating cash flow items Reconciling net earnings to cash flow from operations
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Accruals is future cash If we were to measure performance over the life of the firm then accrual-based and cash-based performance would be the same. However, due to need for periodic reporting these are never the same The world today works on an accrual basis with most daily transactions being realised on credit Credit accelerates growth and promotes risk-taking, but all it does is change the timing of when cash is realised (i.e. it moves cash transactions to the future) Hence, in accounting we say that: Accruals = Future Cash The need for cash information It all comes down to cash, and cash is critical for growth, adaptability and sustainability. It is possible to start a business with little cash (e.g. Microsoft started in a garage) but no business can survive without sufficient cash What is more important: net income or net cash flow? The cash flow statement reports the movement in cash ( inflows & outflows ) over a reporting period. It indicates: the degree and type of liquidity of an entity how cash is generated by and used in operations? from where cash was obtained and where it is invested? what is the cash returns to equity, debt and tax?
Background image of page 2
3 Cash and Financing • Cash reduces risk but how much cash do you need to feel safe from risk? – If you keep all cash at bank then you are gaining returns at an interest rate that is very close to the risk-free interest rate (i.e. the lowest available return) – If you invest all cash then you are vulnerable to even minor changes in business fundamentals A risk-return trade-off : the more cash reserves you have the greater the opportunity loss from investing in projects that yield higher returns. But higher returns are achieved only by taking in more risk • So, how much cash should be held at hand?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/06/2011 for the course ECON 1001 at University of Sydney.

Page1 / 11

W10_lecture_present_slides - Week 10: Cash Flow Statement...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online