Cash Flow Information Summarized by inflows and outflows into three key activities
Presenting Cash Flow Information • Two GAAP formats • Direct method • Indirect method • Difference is how the cash flow from operations section is constructed • Cash flow from investing activities and cash flow from financing activities are the same under both methods
Example The Walt Disney Company Where did Disney obtain and spend its cash?
Disney used excess cash from operations To acquire long-term assets To buy back stock and pay dividends
Direct and Indirect Method Comparison Direct Method Indirect Method Only the operating activities sections differ
Cash Flow and a Company’s Life Cycle • Operating activities • Most important section • Reflects the lifeblood of a company • Principal source of financing for long-term survival