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Unformatted text preview: g of shares does not directly cost the company cash. c. d. Therefore, the expense associated with issuing those shares is a noncash charge, and similar to
depreciation expense, is added back to net income in the calculation of changes in cash balances.
Inventory increased substantially in 2006, drainiing the company of $49 million of cash. In 2007 and 2008,
however, inventory levels declined slightly with the lower investment in this operating account freeing up
$7.8 million and $0.2 million of cash.
The asset impairment charges are noncash expenses (debit expense, credit asset to lower the carrying
value of the asset and decreases earnings/equity) and, similar to depreciation expense, are added back to
net income in the calculation of changes in cash balances. The sale of the subsidiary in 2006 resulted in
a gain, which increased net income; however, the cash inflow from the sale is dealt with in the investing
section of the statement of cash flows and the gain, which increased net income, needs to be backed out
of the calculation of operating cash flows. ID14–7
The statement of cash flows for Danone lists the company’s various sources of net income with an
adjustment for noncash charges, such as depreciation expense (similar to the setup in U.S. GAAP for the
indirect format). Then the statement deals with changes in operating accounts that affect operating cash
flow, again in a similar approach to U.S. GAAP. After totaling operating cash flow (from income, noncash
expenses and other changes, and working capital adjustments), Danone lists its investing activities
(mainly the purchase and sale of longterm assets). Finally, sources and uses of debt and equity capital
are totaled in the financing section. Of note, the company lists changes to marketable securities (short
term, operating investments) in its financing section. The changes in cash from the three areas are
tabulated to show the overall increase/decrease to company cash balances from the...
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