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Chapter 12

Chapter 12. Statement of Cash Flows. Operations Cash received and paid for day-to-day activities with customers, suppliers, and employees. Business Activities and Cash Flows. The Statement of Cash Flows focuses attention on: .

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Chapter 12

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  1. Chapter 12 Statement of Cash Flows

  2. Operations Cash received and paidfor day-to-day activitieswith customers, suppliers,and employees. Business Activities and Cash Flows The Statement of Cash Flows focuses attention on: InvestingCash paid and receivedfrom buying and sellinglong-term assets. FinancingCash received and paidfor exchanges withlenders and stockholders.

  3. Checking and Savings Accounts Currency Cash Equivalents Highly liquid short-term investmentswithin three months of maturity. Business Activities and Cash Flows Cash

  4. Classifying Cash Flows UNDER ARMOUR, INC. Statement of Cash Flows For the Year Ended December 31, 2010 (in millions) Net cash provided (used) by operating activities Net cash provided (used) by investing activities Net cash provided (used) by financing activities Net Change in Cash and Cash Equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year $ 37 (41) 7 3 187 $ 190

  5. Operating Activities Cash inflows and outflows that directly relate to revenues and expenses reported on the Income Statement.

  6. Investing Activities Under Armour’s 2010 Investing Activities

  7. Financing Activities Under Armour’s 2010 Financing Activities

  8. Relationships Between Classified Balance Sheet and Statement of Cash Flow (SCF) Categories

  9. Direct and Indirect Reportingof Operating Cash Flows We will concentrate on the indirect method for now, and wewill look at the direct method again later in the chapter. Same result

  10. Changes in Current Assets and Current Liabilities. + Losses and - Gains + Noncash expenses such as Depreciation and Amortization. Cash Flows from Operating Activities - Indirect Method The indirect method adjusts Net Incomeby analyzing noncash items. Cash Flows from Operating Activities - Indirect Method Net Income

  11. Relationships to the Balance Sheet and the Income Statement Change in accountbalances during the year Use this table when adjusting Net Income to operating cash flows using theindirect method.

  12. Operating cash flows must be positive over the long-run for a company to be successful. An upward trend in operating cash flows over time indicates growth and efficient operations. Look at the relationship between operating cash flows and Net Income. Evaluating Operating Cash Flows

  13. Healthy companies tend to show negative cash flows in the investing activities section. Be cautious over a positive total cash flow in the investing activities section Evaluating Investing Cash Flows

  14. It’s not possible to evaluate the company’s financing cash flows by simply determining whether they are positive or negative on an overall basis. Instead, consider detailed line items with this section to assess the company’s overall financing strategy. Evaluating Financing Cash Flows

  15. Overall Patterns of Cash Flows

  16. Reporting Operating Cash Flows with the Direct Method Provides more detailed information Identifies cash inflows and outflows relationships Prepared by adjusting accrual basis to cash basis Investing and financing sections for the two methods are identical

  17. Reporting Sales of Property, Plant, and Equipment (PPE) (Indirect) Depreciation Expense A loss on the sale of PPE is added back to Net Income just as Depreciation Expense is added back. Adding these noncash items restores Net Income to what it would have been had Depreciation and the loss not been subtracted at all. Loss on Saleof PPE Just the opposite is true for a gain on the sale of PPE. Subtracting the gain reverses the effect of the gain having been added to Net Income. Gain on Saleof PPE

  18. T-account Approach (Indirect Method) T Instead of creating schedules for each section of the Statement of Cash Flows, some prefer to prepare a single large T-account to represent the changes that have taken place in Cash subdivided into the three sections of the Statement of Cash Flows.

  19. T-account Approach(Indirect Method)

  20. End of Chapter 12

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