Cash Flow - Chapter 5

Front 1

Name 4 reasons why the cash flow statement is important.

Back 1

- Show if co. can generate cash from operating activities (can pay exp w/o borrowing)
- Shows details of cash in/out flow; where net profit # came from
- Catches any false fin. stmt reports
- Shows how much co. receives from external fin. (bonds, shares, etc)
- Shows investors if co. able to pay out dividends
- Shows creditors if co. able to pay back loans
- Shows how much is spent on long-term assets

Front 2

What information does the cash flow statement provide?

Back 2

- Details of cash in/out flow from ending acctng period of previous yr to the same point in current year.
- Combines the cash total net increase or decrease of investing, operating & financing activities
- Converts net income from accrual basis acctng to cash basis acctng

Front 3

What steps are taken to convert operating activities from accrual basis to cash basis on the cash flow stmt?

Back 3

1) Net Income total
2) Add or deduct any gain/loss
3) Add depreciation expense
4) Add/deduct any working capital items (current liabilities - current assets)
5) Add/deduct any non-cash items from the I/S

Front 4

What steps are taken to convert investing activities from accrual basis to cash basis on the cash flow stmt?

Back 4

1) T-Account for capital assets & accumulated depreciation - check w/NBV total
2) Add any proceeds from selling capital assets
3) Deduct any cost from purchasing capital assets

Front 5

What steps are taken to convert financing activities from accrual basis to cash basis on the cash flow stmt?

Back 5

1) T-Accounts for R/E & Div. Paid
2) Add/deduct any borrowing/paying back of principle on loans
2) Deduct any dividends paid
3) Add any issues of common shares/ bonds
4) Deduct if any principle paid on loans

Front 6

What is the calculation & purpose of the debt-to-assets ratio?

Back 6

Total Liabilities/Total Assets

Shows how much of their assets are financed by debt vs. how much they actually own. The higher the ratio, the more risk.

Front 7

What information does the cash flow statement provide?

Back 7

- Details of cash in/out flow from ending acctng period of previous yr to the same point in current year.
- Combines the cash total net increase or decrease of investing, operating & financing activities
- Converts net income from accrual basis acctng to cash basis acctng

Front 8

What steps are taken to convert operating activities from accrual basis to cash basis on the cash flow stmt?

Back 8

1) Net Income total
2) Add or deduct any gain/loss
3) Add depreciation expense
4) Add/deduct any working capital items (current liabilities - current assets)
5) Add/deduct any non-cash items from the I/S

Front 9

What steps are taken to convert investing activities from accrual basis to cash basis on the cash flow stmt?

Back 9

1) T-Account for capital assets & accumulated depreciation - check w/NBV total
2) Add any proceeds from selling capital assets
3) Deduct any cost from purchasing capital assets

Front 10

What steps are taken to convert financing activities from accrual basis to cash basis on the cash flow stmt?

Back 10

1) T-Accounts for R/E & Div. Paid
2) Add/deduct any borrowing/paying back of principle on loans
3) Deduct any dividends paid
4) Add any issues of common shares/ bonds
5) Deduct if any principle paid on loans

Front 11

What is the calculation & purpose of the debt-to-assets ratio?

Back 11

Total Liabilities/Total Assets

Shows how much of their assets are financed by debt vs. how much they actually own.

Front 12

What is the calculation for asset-turnover ratio and what does it show us?

Back 12

Sales Revenue/Average total sales
- Shows how well the company uses their assets to generate sales. Higher the better as it shows greater efficiency.

Front 13

What is the calculation for net-profit-margin ration and what does it show?

Back 13

Net Income/Sales Revenue
- Shows how well a company can generate sales while controlling expenses. Higher ratio = better performance.