1 / 30

Understanding Cash Flow Statements for Investors

Learn how Statement of Cash Flows helps investors assess a company's financial health, cash flow generation, financing needs, and transactions. Get insights into the three sections of the statement and simplified formulas for calculating cash flows.

robina
Download Presentation

Understanding Cash Flow Statements for Investors

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. งบกระแสเงินสด(Statement of Cash Flows) Chapter12

  2. Helps investors with questions about the company’s: Ability to generate positive cash flows. Ability to meet its obligations and to pay dividends. Need for external financing. Investing and financing transactions for the period. Purpose of the Statement of Cash Flows Provides information about the cash receipts and cash payments of a business entity during the accounting period.

  3. Classification of Cash Flows • The Statement of Cash Flows must include the following three sections: • Cash Flows from Operating Activities • Cash Flows from InvestingActivities • Cash Flows from Financing Activities

  4. + _ Operating Activities Inflows from: • Sales to customers. • Interest and dividends received. Cash Flows from Operating Activities Outflowsto: • Suppliers of merchandise and services. • Employees. • Lenders for interest. • Governments for taxes.

  5. Inflowsfrom: Selling investments and plant assets. Collecting principal on loans. + _ Investing Activities Cash Flows from Investing Activities Outflowsto: • Payments to acquire investments & plant assets. • Purchase debt or equity investments. • Make loans.

  6. Inflowsfrom: Short-term and long-term borrowing. Owners (for example, from issuing stock). + _ Financing Activities Cash Flows from Financing Activities Outflowsto: • Repayments of borrowed funds. • Owners for dividends. • Purchase treasury stock.

  7. The operating cash flows section can be prepared using either the direct method or the indirect method.

  8. Now that we understand the process, let’s look at some simplified formulas for computing direct method cash flows.

  9. Accrual basis revenue includes sales that did not result in cash inflows. Can be computed as: Direct MethodCash Received from Customers Decrease in receivables + = Cash Received from Customers Net Sales Increase in receivables – =

  10. The A/R balance was $80,000 on 12/31/20x1 and $110,000 on 12/31/20x2. If accrual sales revenue for 20x2 was $900,000, what was cash basis revenue? Direct MethodCash Received from Customers Decrease in receivables + = Net Sales $900,000 Cash Received from Customers Increase in receivables – =

  11. Direct MethodCash Received from Customers The A/R balance was $80,000 on 12/31/20x1 and $110,000 on 12/31/20x2. If accrual sales revenue for 20x2 was $900,000, what was cash basis revenue? Decrease in receivables Net Sales $900,000 Cash Received from Customers = $870,000 $30,000 Increase in receivables – =

  12. Step 1 Step 2 Direct MethodCash Paid for Merchandise

  13. How much did Lug Lite pay for inventory in 20x1? Direct MethodCash Paid for Merchandise Purchases for 2003 were $935,000. Purchases = $900,000 + $35,000 Cash Paid for Merchandise in 2003 was $923,000. Cash Paid = $935,000 - $12,000

  14. Direct Method - Example Cash Flows From Operating Activities

  15. Let’s prepare a complete Statement of Cash Flows using the Indirect Method.

  16. Reporting Operating Cash Flows by the Indirect Method Changes in current assets and current liabilities as shown on the following table. Cash Flows from Operating Activities Net Income + Losses and - Gains + Noncash expenses such as depreciation and amortization.

  17. Reporting Operating Cash Flows by the Indirect Method Use this table to determine the effect of changes in current assets and liabilities on Operating Cash Flows.

  18. Joe’s Place has prepared the Balance Sheet as of March 31, 20x2, and March 31, 20x1. The Income Statement for the year ended 3/31/x2 has also been prepared. Joe needs help preparing the Statement of Cash Flows. Joe’s Place Indirect Method - Example

  19. Indirect Method - Example With the indirect method, always start with the net income or net loss for the period.

  20. Indirect Method - Example

  21. Indirect Method - Example Add back non-cash expenses.

  22. Indirect Method - Example The $8,000 gain was the result of selling land costing $32,000 for $40,000 during the period.

  23. Indirect Method - Example Subtract gains.

  24. Indirect Method - Example The operating cash flows amount comes from the schedule just prepared.

  25. Indirect Method - Example Land originally costing $32,000 was sold for $40,000.

  26. Indirect Method - Example Dividends of $20,000 were paid to owners during the year.

  27. Indirect Method - Example Compute the net change in cash for the period.

  28. Indirect Method - Example Complete the Statement of Cash Flows by reconciling beginning cash to ending cash.

  29. Indirect Method - Example Note that the ending cash amount ties back to the Joe’s Place Balance Sheet at 3/31/20x2.

  30. End of Chapter 12 Chester, ol’ buddy, I wonder if you could help me with a little cash flow problem I’m having?

More Related