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42 Cards in this Set

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  • Back
What does the statement of Cash flows (SCF) explain
It explains the changes in a company's cash balance during the fiscal period and the causes of those changes
Why is the SCF important?
-Capacity to meet obligations for cash
-ability to generate cash flows in the future
-effectiveness in implementing investing & financing strategies
-success in productively managing investing activities
-future external financing needs
-helps analyze solvency (NOT PROFITABILITY)
What statements helps aalyze profitability?
Income Statement
What statement helps analyze solvency
What are the three cash flow activities?
OPeratin, investing and financing
What is the indirect format of the SCF
The indirect format reconciles net incomeon an accrual basis with cash flow from operating activities on a acash basis
(Investing and financing sections are the same on indirect and direct format)
What is the difference between the direct format and indirect format for the SCF
The indirect and direct formats have different operatig sections.
SCF operating section format
1. Begins with Net income/Loss
2.Analysis of the Income Statement, non-cash expenses (depreciation and amoritization)
3. Analysis of the balance sheet, (Current Assets AND current liabilities)
Investing section of the SCF
Analysis of longterm assets (Buying or selling)
Financing Section of the SCF
-Analysis of long-term liabilities and Stockholder's equity
(external financing and debt and equity transactios)
(Interest on debt is a part of the operating activities)
What financial statement do you need to perepare the SCF
I/S + SSE + B/S
Operating activities
Its primary purpose is to be a source of cash
Investing activities primary purpose
To be a use of cash (Buy PP&E, oter investments)
Financing activities primary purpose
To be a source of cash (Borrow money, sell stock)
How can A/R analysis identify earnings quality issues?
Sales, Gross A/R and Allowance GR not all moving in the same direction or the movement is not proportional
Earnings Quality Depreciation
- How long you decide the life of the asset is
- The depreciation method
Earnings Quality Restructuring
-Restructuring charges along multiple years
- Reversing the restructuring charges
Earnings Quality Reserves
Put money away while times are good, pull when times are bad
Financial Reporting quality (notes)
-Lack of disclosure in the notes
-Line item whose amount is "netted"
Financial Reporting quality (B/S)
Balance Sheet data that should be assessed
-C/L vs C/A (debt/asset managing)
-Contingencies and Commitments not on the face of the B/S but in the Notes
-Off-balance sheet financing -opeating leases
Financial Reporting quality (I/S)
I/S data that is not presented in utli step format
Financial Reporting quality (SCF)
Significant changes in CA nad CL
-Sell A/R, get cash, increase CFO
-Delay A/P Payments, increases CFO
Segment Data (why)
Identifies areas of strength and weekness
- contributions to revenue and operating profit by segementing
-Business and geographical
What does a large operating cash flow realtive to NI ususally inidicate
Good financial performance
What does the cash flow from operating activities normally apprx. = to
Cash flow from Investing plus cash flow from financing
DO you ahve an obligation to repay Equity financing or debt financing
Equity financing= no
Debt financing= yes
Is interest expense deductible?
Yes for net income purposes
Are dividends deductible?
What is profitability based on?
Accrual basis
What is solvency based on?
Cash basis
Outstanding shares
Shares sold - shares repurchased
Which of these represents a cash inflow from the investing section fo the Statement of Cash Flows
a. The company sold their own common stock
b. The company borrowed money from a bank
c. The comapy sold securities held for investment
d. The company purchased equipment to use in the business
Answer is C the company sold securities held for investment
Do publicly held companies have to report BAsic EPS on the Income Statement?
Does the Statement of Cash Flows include repayment of debt principal?
How do you calculate RE?
NI- dividends
Why is diluted EPS typically higher than Basic EPS?
Because of the effect of convertible securities, stock options and/or warrants that dillute the diluted EPS
What does it mean if a companies FL = 1.0
It means they have afinanced all of their assets with equity
On a common size income statement how would you calculate provision for taxes common size?
Provision for taxes over net income BEFORE taxes
If a new delivery truck was purchased for 18000 and half was paid in cash and half was on credit how is the accounting equation affected?
SE=no change
Where do you find information about a companies retained earnings?
Balance Sheet and SSE
If a sporting goods store sold 36000 worth of merchandise and 70% was collected in cash. The merchandise originally cost the store 20000 how many different accounts were affected?
The primary accounting principle/assumption associated with preparing financial statements on a regular basis is the matching principle