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Lecture 12 Cash Flow Statements

Lecture 12 Cash Flow Statements - LECTURE 12 CASH FLOW...

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LECTURE 12 CASH FLOW STATEMENTS MGCR 211
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User Relevance Important to Creditors Can assess the level of cash flows available to repay debt (operating cf / debt ratio) Important to Investors Will help assess the presence of any potential liquidity issue Can also assess the level of growth of the company (asset purchases) Important to Management Can evaluate the use of cash made by the company. Are the activities of the companies sustainable?
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Cash Flow and Net Income reconciliation Net income is based on accrual accounting and doesn’t necessarily represent the cash flows for the period. Cash flow represents all physical movement of cash that occurred from the company’s bank account during the period. When analyzing financial statements, it is important to consider both statements to get a better idea of the position of the firm.
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Cash Flow Statement Cash flow statement measures the change in the cash and cash equivalent position of the firm. Cash equivalent are highly liquid current assets that can be converted into cash in 3 months or less. Over time, CF = NI
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Cash Flows Positive cash flows: Company received more cash than it paid in the period. Negative cash flows: Company received less cash than it paid in the period.
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Cash Flow example The following transaction occurred during the month of October.
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