Cash Flow Statement

Question 1

2 main reasons:

Answer 1

• non cash revenue or expenses on income statement, need to be adjusted on cash flow statement to determine how your cash balance actually changes
• may be additional cash ins and outflows that havent appeared on the income statement

Question 2

Separated into 3 main sections

Answer 2

Cash flow from operations
Cash flow from investing
Cash flow from financing

Question 3

Cash flow from operations - CFO

Answer 3

Net income from income statement flows in at the top, then you adjust for non-cash expenses and take into account how operational balance sheet items like accounts receivable/ payable have changed

Question 4

Cash flow from investing - CFI

Answer 4

Anything related to company’s investments, acquisitions and PP&E.
- purchases negative because they use up cash
- sales are positive because they result in more cash

Question 5

Cash flow from Financing - CFF

Answer 5

Items related to debt, dividends, and issuing or repurchasing shares show up here

Question 6

Deferred revenue is often a long term liability but

Answer 6

Never shows up in cash flow from financing, because it’s related to customers paying the company for products

Question 7

ST investments is a current asset, but

Answer 7

It appears in cash flow from investing, not cash flow from operations - since its an investment and has nothing to do with accepting customer payments or paying for employees or other expenses

Question 8

Better to associate each section of cash flow statement with

Answer 8

Types of items, rather than strict categories from balance sheet.

Question 9

If item recorded on IS and true cash revenue or expense, wont appear on CF except -

Answer 9

E.g. - gains or losses on asset sales.

Subtracting it out of cash flow from operations and instead including it as part of the full selling price of the assets in CFI instead.

Question 10

Direct method

Answer 10

Cash flow has all major cash receipts and payments during the period

Question 11

Indirect method

Answer 11

• Start with net income, adjust for non-cash items
  
  • Add back non-cash expenses
• Adjust for movements in working capital, e.g. increase in inventory = decrease in cash. Decrease in receivables = higher cash, increase in payables means more cash