Accounting Ch 13

marketable securities

short-term investments--have a maturity of more than 90 days but are intended to be held only until cash is needed for current operations

free cash flow

the amount of cash that remains after deducting the funds a company must commit to continue operating at its planned level

cash generating efficiency

a company's ability to generate cash from its current or continuing operations

trading securities

a type of marketable security that a company buys and sells for making a profit in the near term as opposed to holding them indefinitely for investment purposes

direct method

converts each item on the income statement from the accrual basis to the cash basis.

indirect method

does not require the conversion of each item on the income statement. It lists only the items necessary to convert net income to cash flows from operations

cash

including both cash and cash equivalent

cash equivalents

investments that can be quickly converted to cash--have a maturity of 90 days or less when they are purchased, and they include money market accounts, commercial paper (short-term corporate notes), and US treasury bills (a company invests in these to earn interest on cash that would otherwise be temporarily idle)

financing activities

involve obtaining resources from stockholders and creditors. Cash inflows include the proceeds from stock issues and from short- and long-term borrowing, cash outflows include the repayment of loans (excluding interest) and payments to stockholders, including cash dividends

investing activities

involve the acquisition and sale of property, plant, and equipment and other long-term assets, including long-term investments--also involve the acquisition and sale of short-term marketable securities, other than trading securities, and the making and collecting of loans

operating activities

involve the cash inflows and outflows from activities that enter into the determination of net income--include cash receipts from the sale of goods and services and from the sale of trading securities

statement of cash flows

shows how a company's operating, investing, and financing activities have affected cash during a period. Explains the net increases or decreases during a period

cash flow to assets

the ratio of net cash flows from operating activities to average total assets

cash flow yield

the ratio of net cash flows from operating activities to net income

cash flow to sales

the ratio of net cash flows from operating activities to net sales

noncash investing and financing transactions

transactions that involve only long-term assets, long-term liabilities, or stockholders' equity.