Acc After Exam 2
Terms
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- Primary Purpose of Operating Activities
- Source of Cash
- Primary Purpose of Investing Activites
- Use of Cash (Buy PP&E, other Investments)
- Primary Purpose of Financing Activities
- Source of Cash (Borrow Money, Sell stock)
- Inflow
- Cash going in- does not have brackets
- Outflow
- Cash going out- has brackets
- SCF- importantance (5 points)
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1. Capacity to meet obligations for cash.
2. Ability to generate cash flow in the future.
3. Effectiveness in implementing investing & financing strategies.
4. Success in productively managing investing activites
5. Future external financing needs - SCF Facts
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Period of time
Usually 3 years of data
All are Operating, Financing or Investing activities. - Indirect SCF
- Reconciles net income on an accrual basis with cash flow from operating activites on a cash basis.
- Difference between Indirect or direct format
- Operating Section
- SCF Operating Section
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1. begins with Net Income/Loss
2. Analysis of the INcome Statement non cash expenses
3. Analysis of the balance sheet, current assets and current liabilities - Investing Activities
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Analysis of long-term assets
Buying and Selling - External Financing
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Anaysis of long-term liabilities & stockholders' equity
Debt and equity transactions - Positive cash flows from operating activities
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Indicative of mature industry
Net income is most likely positive - Positive Cash flows from investing activities
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Assets are being sold
ay not be much opportunity for growth/expansion
operations being downsized
asset GR negative - Negative cash flows from financing activities
- Creditors and/or owner are being paid off
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Asset increase
Asset decrease
Liability Increase
Liability decrease -
Cash flow decrease (brackets)
Cash flow increase
Cash flow increase
Cash flow decrease - What do you want Cash flow patterns to look like
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Operating Cash FLows Positive
Investing Cash Flows Negative
Financing Cash Flows Negative
Company is prosperous and mature, growing by investing in long-term assets, using financing to take advantage of opportunties. - Cash inflow
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Asset Decrease
Liability Increase
S/E Increase - Cash Outflow
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Asset Increase
Liability Decrease
S/E Decrease - 2 Rules of Cash Flow
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Large operating cash flow relative to N/I usually indicates good financial performance
Cash flow from operating activities normally is ppproximately = to cash from from investing activities + cash flow from financing activities