Chapter+13+Slides+with+notes

Chapter+13+Slides+with+notes - Chapter 13 Chapter 13...

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Chapter 13 Statement of Cash Flows Slide 1 Chapter Thirteen ACCT 2010 Fall 2011 Allen Huang Understanding the Business Positive cash flows permit a company to . . . Pay Expand its operations. Replace needed assets. Take advantage of market opportunities. dividends to owners. Slide 2 Chapter Thirteen Wall Street analysts consider cash flow an important indicator of a company’s financial health.
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Cash Currency Cash Equivalents Classifications of the Statement of Cash Flows z Short-term, highly liquid investments. Slide 3 Chapter Thirteen z Readily convertible into cash. z So near maturity that market value is unaffected by interest rate changes (i.e., less than 3 months to maturity). z What happens to a 10-year bond if market interest rate changes from 5% to 10%, what about a 1-year bond? Investing Activities Operating Activities Financing Activities Sale of operational assets Sale of investments Cash received from revenues Issuance of stock Issuance of bonds and notes CASH INFLOWS Collections of loans Business Slide 4 Chapter Thirteen CASH OUTFLOWS Purchase of operational assets Purchase of investments Loans to others Cash paid for expenses, payment to suppliers Payment of dividends Repurchase of stock Repayment of debt
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Computing the SCF: Direct vs Indirect Method Direct method – List all cash inflows and outflows affecting the cash account. We organize the list in terms of the three categories noted previously We organize the list in terms of the three categories noted previously. Indirect method – Only affects the way you calculate CFO. • CFI and CFF are the same. • We begin with Net Income and we undo all the non-cash items influencing Net Income as well as accrual adjustments we made. Slide 5 Chapter Thirteen Difference between two methods? – Both methods arrive at the same answer: the change in cash. – Only the CFO section looks different. – Indirect method (by far the most popular) helps the reader understand more about the Income Statement. Example: Direct Method Cash (A) Statement of Cash Flow (Direct method) Operating activities: Cash collected on A/R 300 Cash collected on unearned revenue 250 Beginning balance 400 Collected cash on A/R 300 180 Paid vendors for A/P Sold PPE 50 200 Purchased inventory Issued common stock 500 120 Purchased patent Received cash on 280 Purchased PPE Cash collected on unearned revenues Payments on A/P (180) Purchase of inventory (200) Cash flow from operations 170 Investing activities: Purchase of PPE (280) Sale of PPE 50 Purchased patent (120) Cash flow from investing (350) Slide 6 Chapter Thirteen orders, not yet delivered 250 130 Repaid bank loan Ending Balance 590 Financing activities: Issued common stock 500 Repaid bank loan (130) Cash flow from financing 370 Net cash flow 190 Beginning cash balance 400 Ending cash balance 590
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(in thousands) Three months ended (unaudited) March 31, 2007 Cash flows from operating activities: Net income 5,768 $ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,726 Changes in assets and liabilities
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This note was uploaded on 12/20/2011 for the course ACCT/MGMT 2010 taught by Professor A during the Spring '11 term at HKUST.

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Chapter+13+Slides+with+notes - Chapter 13 Chapter 13...

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