day 19 cash flow statement 2009 spring v2

day 19 cash flow statement 2009 spring v2 -...

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Cash Flow Statement Dr. James Gong
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Agenda Why cash flow statement:  accrual accounting vs. cash accounting Evolution of cash flow statement Two formats of cash flow statement Indirect method Adjustment Special problems Direct method 
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Objectives of Financial  Reporting Provide information about a firm to help investors, creditors  and others assess the  Amounts of future cash flows Timing of future cash flows Uncertainty of future cash flows In other words, investors need information on the  company’s  Ability to generate cash in its business and pay cash  dividends  Cash flows to meet its operating needs of cash and its  debt obligations when due.
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Limited Cash Flow Information  from Accrual Accounting Accountants measure net income using the  accrual basis of accounting. Recognition of revenues does not necessarily  coincide with receipts of cash from customers. Recognition of expenses does not necessarily  coincide with disbursement of cash to suppliers,  employees and others.  Conservatism principle in recognizing gains and  losses
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Need of information about cash flows Limited cash flow information from accrual  accounting Lack of understanding on the part of many  investors as to the differences between  accrual versus cash accounting Net income does not really reflect the  earning power of firm  Why Cash Flow Statement
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At a negotiation meeting between labor union and  company management, union negotiator Vince  Barr asked the managers, “What do you mean you  can’t afford a wage increase? We’ve all seen your  income statement. You had record earnings this  year.”  What are the cash flow aspects of the situation that Mr.  Barr may be overlooking in making his case for a wage  increase?  How can a company’s operations generate a healthy  profit and yet produce meager or even negative cash  flows? Why Cash Flow Statement
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The company has had the moderate increase in this year’s  profits after three years of level or slightly declining  earnings.  The company has always used accelerated depreciation on  its equipment which it began replacing this year at  considerably higher prices than it cost several years back. Wages are paid from cash flows rather than earnings.  Positive net income does not necessarily indicate a healthy  cash position.   Why Cash Flow Statement
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FASB surveyed 32 sell-side equity analysts, 7 buy-side  analysts, 12 credit-rating analysts, 3 credit analysts, and 2  other users.
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day 19 cash flow statement 2009 spring v2 -...

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