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Cash Flows by area Most numbers derived from changes in Balance Sheet Accounts Focuses on Sources and Uses of Funds Per PowerPoint Presentation
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Statement of Cash Flows. Cash Flows by area Most numbers derived from changes in Balance Sheet Accounts Focuses on Sources and Uses of Funds Period of Time Relatively Recent Statement, late 1980’s. Organization of Cash Flow Statement. Operating Activities:

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Presentation Transcript
slide1

Statement of Cash Flows

  • Cash Flows by area
    • Most numbers derived from changes in Balance Sheet Accounts
    • Focuses on Sources and Uses of Funds
  • Period of Time
  • Relatively Recent Statement, late 1980’s
slide2

Organization of Cash Flow Statement

  • Operating Activities:
    • Best Indicator of Business Health
    • Current Accounts
    • Net Income
    • Depreciation
    • Day to day, core business activities
  • Investing Activities
    • Long Term, Strategic Activities
    • Fixed Assets (Gross PP&E)
    • M&A Activity
slide3

Organization of Cash Flow Statement

  • Financing Activities
    • Acquisition of funds from or payment of funds to claimants (owners or creditors)
    • Notes Payable and Lower RHS
    • Dividend Paid or Received
  • Financing Activities
    • General Key: Increases in Assets are uses of funds/outflows
      • “remember one and get three for free”
balance sheets assets
Balance Sheets: Assets

1998 1997

Cash 7,282 9,000

Short-term inv. 0 48,600

AR 632,160 351,200

Inventories 1,287,360715,200

Total CA 1,926,802 1,124,000

Gross FA 1,202,950 491,000

Less: Depr. 263,160146,200

Net FA 939,790344,800

Total assets 2,866,592 1,468,800

slide5

Liabilities and Equity

1998

1997

Accts payable

524,160

145,600

Notes payable

720,000

200,000

Accruals

489,600

136,000

Total CL

1,733,760

481,600

Long-term debt

1,000,000

323,432

Common stock

460,000

460,000

Retained earnings

(327,168)

203,768

Total equity

132,832

663,768

Total L&E

2,866,592

1,468,800

statement of cash flows 1998
Statement of Cash Flows: 1998

OPERATING ACTIVITIES

Net Income (519,936)

Adjustments:

Depreciation 116,960

Change in AR (280,960)

Change in inventories (572,160)

Change in AP 378,560

Change in accruals 353,600

Net cash provided by ops.

(523,936)

slide7
L-T INVESTING ACTIVITIES

Investments in fixed assets (711,950)

FINANCING ACTIVITIES

Change in s-t investments 48,600

Change in notes payable 520,000

Change in long-term debt 676,568

Payment of cash dividends (11,000)

Net cash from financing 1,234,168

Sum: net change in cash (1,718)

Plus: cash at beginning of year 9,000

Cash at end of year 7,282

slide8

Analysis of Statement of Cash Flows

  • What were the major sources and uses of cash?
  • What % of inflows and outflows came from the three areas?
  • What lifecycle stage is the firm in?
  • Is cash being created internally or externally?
  • Is the pattern typical (and sustainable), or not?
slide9

What can you conclude about the company’s financial condition from its statement of cash flows?

  • Net cash from operations = -$523,936, mainly because of negative net income.
  • The firm borrowed $1,185,568 and sold $48,600 in short-term investments to meet its cash requirements.
  • Even after borrowing, the cash account fell by $1,718.
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