STATEMENT OF CASH FLOWS Chapter 12. Compare Companies INCOME Company A Company B Sales$500$500...
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Transcript of STATEMENT OF CASH FLOWS Chapter 12. Compare Companies INCOME Company A Company B Sales$500$500...
STATEMENT OF
CASH FLOWS
Chapter 12
Compare Companies
INCOME Company A Company BSales $500 $500Expenses 425 425Net Income $ 75 $ 75CASHBeginning of Year $25 $25End of Year 25 25Change in CASH -0- -0-
Cash Activities Company A BCash Rec’d
Customers $450 $350 Sale of PA 5 60 Total $455 $410
Cash Paid To suppliers $380 $400 Purch of PA 70 10 Purch Invest 5 0
Cash Paid $455 $410Change in Cash -0- -0-
Why Are Cash Flows Important?
Cash is what pays the bills.You must sell your product and collect cash
from your customers in time to:1. Pay suppliers for merchandise
purchases2. Pay the bank on any loans (debt)3. Pay employees their wages4. Pay taxes5. Purchase new equipment as needed.
Analyzing where a company’s cash is coming from & where it is being spent may assist in detecting future profit potential and/or future financial problems.
NET CASH FLOWS
Cash Inflows--Cash Outflows = Net Cash
Flows
Two parts of Cash Flow Statement
Activities Operating Investing Financing
Cash Balance verification Increase (Decrease) in cash Cash at Beginning of Year Cash at End of Year (Balance Sheet)
Cash Flows from Operating
Current accounts: current assets, current liabilities1. Cash received from customer
Cash A/R
2. Cash paid to suppliersA/P Cash
Investing Activities
Invest in Yourself Purchase of plant assets ( minus cash) Building
Cash-- Sale of plant assets ( plus cash)
CashBuilding
Investing Activities (2)
Investments in Others Purchase of other company’s stock or bonds Sale of other company’s stock or bonds Loaning money to other company (N/R) Collection of principle payments on loan
Financing
1. Equity ( Your own company) Issuing shares of stock Retiring shares of stock Purchasing shares of treasury stock Selling shares of treasury stock PAYING CASH DIVIDENDS ON STOCK
Financing 2
2. DEBT Borrowing cash Cash M/P
Repaying Principle on a loan M/P Interest Expense
Cash
“Foolers”
Interest Paid Decision to go into debt is Financing activity Paying interest on the debt is operating or current
Interest Received Decision to loan money is an investing activity Receiving interest on loan is operating or current
Dividends Received Decision to purchase other company’s stock-investing Receiving dividends is operating or current
Dividends paid - different Decision to sell stock is Financing activity Paying dividend to stockholders is also financing activity
Schedule of Non Cash Activities
Need to be reported if will affect cash flows in the future.
Activities:1.Purchasing plant assets by signing a note
payable2.Purchasing a building through a mortgage
loan3.Exchanging stock for plant assets4.Issuing stock to retire debt5.Converting preferred stock to common stock
Operating (O), Investing (I), Financing (F)
Source (+), Use (-)
1. Earned a net income O +2. Paid Cash Dividend F-3.Issued stock for cash F+4.Retired Long Term Debt by issuing stock
Non Cash
5. Paid A/PO-
6. Purchased inventory with cashO-
Review Sheet.Homework
Read Chapter 12 or whatever book with cash flow OR Watch the narrated power slides on book website DO 12-1, 12-10 – Activities DO 12-2 Cash Flow from Operations DO 12-3 Free Cash Flow DO 12-8 Statement of Cash Flow 12-14 -- Analysis
BASIC STRUCTURE OF A STATEMENT OF CASH FLOWS
Cash provided (used) by: Operating activities
Investing activitiesFinancing Activities
Net Incr (decr) in cash and cash equiv Cash and Cash Equiv at beginning of
year(last year) Cash and Cash Equiv at end of year
Cash Flow Statement- operating
Start with Income on an Accrual Basis, (Net Income)
Accrual transactions(No cash in transaction):
Dr. A/R Cr. Sales Dr. Advertising X Cr. A/P
Then make adjustments (incr or decr) net income to show income on a Cash Basis.
Indirect method
Income from continuing operations (accrual income)Add: Depreciation, depletion, and amoritization XAdd/decr changes in Current AssetsAdd/Decr changes in Current LiabilitiesAdd back any non cash losses or decr any non cash
gains
= Net cash flow from operating activities
This number should always be positive See Page 555
Changes in Current Assets
Current assets increase ---decrease in cash flow
A/RSale I ReceiveOn Acct I Cash OPPOSITE InventoryBuy I SaleInventory I Inventory
Changes in Current Liabilities
Current liabilities increase ---increase in cash flow
A/PPay I PurchaseCash I on acct SAME
Steps for CFO (Cash flow from Operations)
1. Write down Net Income from Income Statement
2. Add in Depreciation and Amortization3. Record changes to Current Assets and
Current Liabilities4. Add in any non cash losses/subtract any
non cash gains (sale of plant assets)
Basic Concepts for Investing and Financing Section
Paying back decreases cash flowBuying decreases cash flowSelling increases cash flowSell stock for cash = issue stock increase
cash flow
If you sell more plant assets than you buy your company is contracting
If you buy more than you sell your company is expanding
Investing Basics-Review Problem
PPE A.DBeginning Balance 309 194PPE Sold (12)
(5)Subtotal 297 189Less Ending Balance 430 218Purchased/DeprX 133 29
Financing Basics
RETAINED EARNINGSBeginning 92Plus Net Income 66Subtotal 158Ending Bal 110Dividends 48
Which one would you want to work for??????
Last Section (Cash reconciliation)
Change in cash for the periodAdd last year cash (beginning cash) from
balance sheetShould equal cash on balance sheet for
current year (Check figure)
Create a Cash Flow for Shubert