Cash Flow Statements, Week 2&3

What high interest rates mean for those with good net income by temp shrotage of cash

When interest rates are high, the cost of borrowing to cover short-term cash can be out of reach for many firms seeking to cover temporary cash shortages. Periods of inflation distort the meaningfulness of net income, through the understatement of depreciation and cost of goods sold expenses, making other measures of operating

Operating activities

activities include delivering or producing goods for sale and providing services and the cash effects of transactions and other events that enter into the determination of income.

financing activities

"borrowing from creditors and repaying the principal and obtaining resources from owners and providing them with a return on the investment."

cash

"includes cash and highly liquid short-term marketable securities, also called cash equivalents. They include U.S. Treasury bills, certificates, notes, and bonds; negotiable certificates of deposit at financial institutions; and commercial

how does accumulated depreciation appear in the asset section of the cash flow statement?

"is a contra-asset or credit balance account because it reduces the amount of total assets. Accumulated depreciation is shown in parentheses on the balance sheet and has the same effect as a liability account."

What are the four sections of a cash flow statement

cash, operating activities, investment activities, financing activities

Two methods for calculating cash flow

direct method - shows cash collections from customers, interested and dividends collected, other coperation cash reciepts, cash paid to suppliers, employees, interest paid, taxes padi, and other operating cash payments. INDIRECT METHOD starts with net income and adjusts for deferrals, accruals, noncash items and non operating items

Cash generated externally generated is represented where in the cash flow statement?

investing and financing activities, since these represent income generation from 3rd parties and not from the busienss itself

Cash generated internally is represented where in the cash flow statement?

operating activities

Cash flow statements are segregated by

operating activities, investing activities, and financing activities

How does a cash flow differ between a balance sheet

the statement of cash flows shows the changes in the balance sheet accounts between periods. The change in cash between periods is explained by the changes in all the other balance sheet accounts, and each balance sheet account is related either to an operating activity. because the balance sheet balances, so does the cash flows statement.

Does the Cash Flow Statement balance

yes, because it is an analysis of the balance sheet in two different periods

What is a primary metric in the Cash Flow statemetn

Cash flow from operations: bankers, wholesalers, investors will rely upon it

Investing activities

Investing activities include (1) acquiring and selling or otherwise disposing of (a) securities that are not cash equivalents and (b) productive assets that are expected to benefit the firm for long periods of time and (2) lending money and collecting on loans.

What does the cash flow statement show

The statement of cash flows provides the relevant and necessary information to assess a company's cash inflows and outflows during an accounting period and over time. This is used as a direct counterpoint to the Income statement where there may be positive or negative income and no cash flowing in.

Formula for calculating change between balance sheets periods

Total Inflows less Total Outflows = Change in cash for the accounting period