cash flow statement Flashcards
Flashcard 1: Overview of Financial Statements
Q: What information does each financial statement provide?
A:
Income statement: Informs about how consumers value a company’s products/services.
Balance sheet: Shows company resources and claims by creditors/owners.
Statement of cash flows: Summarizes cash inflows and outflows
Flashcard 2: Cash Flow Categories
Q: What are the three categories of cash flow?
A:
Operating activities
Investing activities
Financing activities
Flashcard 3: Significant Non-Cash Transactions
Q: Why are significant non-cash transactions disclosed?
A: They impact financial analysis but do not appear in cash flow statements directly.
Flashcard 4: Cash Flow and Company Life Cycle
Q: What are the life cycle stages of a company?
A:
Introduction/Startup
Growth
Maturity
Decline
Flashcard 5: Evaluating Cash from Operations (CFO)
Q: How do we evaluate CFO?
Positive CFO: Indicator of growth or operational efficiency.
Negative CFO: Can signal poor performance or investment in working capital.
Large gap between net income and CFO: May indicate unusual accounting items.
Flashcard 7: Evaluating Cash from Investing (CFI)
Q: What is the typical trend in CFI?
A:
Usually negative due to investments in operations.
Important to compare capital expenditures (CapEx) vs. depreciation add-backs.
A:
Usually negative due to investments in operations.
Important to compare capital expenditures (CapEx) vs. depreciation add-backs.
Flashcard 8: Cash Expenditures Analysis
Q: How should investments be assessed?
A: Identify whether investments are risky or strategic.
A: Identify whether investments are risky or strategic.
Flashcard 9: Evaluating Tesla’s Cash Flow from Investing
Q: What should be observed in Tesla’s investing section?
A:
Trends in PP&E purchases vs. depreciation add-back.
Signs of inefficient capital use or accounting distortions.
Flashcard 10: Evaluating Cash from Financing (CFF)
Q: How is free cash flow related to CFF?
A:
CFO + CFI = Free Cash Flow (FCF)
Positive FCF: Funds distributed to debt/equity holders.
Negative FCF: Issuing new debt/equity.
Flashcard 11: Role of Cash Reserves
Q: How do cash reserves interact with cash flows?
A:
Positive FCF → Cash reserves increase.
Negative FCF → Cash reserves decrease (burn rate).
Flashcard 12: Incentives to Manage CFO
Q: Why do firms have incentives to manipulate CFO?
A:
Financial distress (credit rating concerns).
Analyst cash flow forecasts.
High correlation between stock returns and CFO.
Flashcard 13: Shifting the Timing of Cash Flows
Q: What strategies do firms use to manage CFO?
A:
Accelerating cash inflow: Offering discounts for early payments, factoring receivables.
Delaying cash outflow: Negotiating supplier terms, reverse factoring.
Flashcard 14: Accounts Payable Programs (Reverse Factoring)
Q: What is reverse factoring?
A: A bank pays a supplier instead of the company, and the company then owes the bank.
Flashcard 15: Effects of Reverse Factoring
Q: How does reverse factoring impact financial statements?
A:
Can classify liability as either payable or borrowing.
May impact Cash Flow from Operations (CFO) vs. Cash Flow from Financing (CFF).
Flashcard 16: Cash Conversion Cycle Impact
Q: How does reverse factoring affect the cash conversion cycle?
A: Improves Days Payable Outstanding (DPO), reducing overall cycle.
Flashcard 17: Shifting Cash Flow Categories - Intel & Marvell Example
Q: How did Intel and Marvell shift cash flow categories?
A: Inflated semiconductor wafer prices to shift investing cash inflow as operating inflow.
Flashcard 20: Shifting Operating Cash Outflow as Financing
Q: How can stock-based compensation shift cash flows?
A: It can be structured to defer recognition and impact operating vs. financing cash flow.
Flashcard 21: Key Takeaways on Cash Flow Analysis
Q: What are the main insights from cash flow evaluation?
A:
Understand cash flow trends based on life cycle stage.
Assess each section of cash flows for unusual items or mismatches.
Be aware of CFO manipulation via shifting timing or categories.
