Cash Flow Statements

Question 1

Operating Cash Flows (CFO)

Answer 1

\+ cash rec'd from customers
\+ cash dividends received
\+ cash interest received
\+ other cash income
- payments to suppliers
- cash expenses (wages, etc)
- cash interest paid
- cash taxes paid

Question 2

Investing Cash Flows (CFI)

Answer 2

+ sale proceeds from fixed assets
+ sale proceeds from debt & equity investments
+ principal received from trading securities
- acquisition of fixed assets (PP&E)
- acquisition of debt and equity investments
- loans made to others

Question 3

Financing Cash Flows (CFF)

Answer 3

\+ principal amounts of debt issued
\+ proceeds from issuing stock
- principal paid on debt
- payments to reacquire stock
- dividends paid to shareholders

Question 4

Non-cash Investing and Financing Activities

Answer 4

*disclosed in footnotes

converting debt or preferred equity into common equity
assets acquired under capital leases
purchase of assets via issuance of debt/equity
exchanging one non-cash asset for another
stock dividends

Question 5

Interest received (CFs)

Answer 5

US GAAP = CFO

IFRS = CFO or CFI

Question 6

Interest Paid (CFs)

Answer 6

US GAAP = CFO

IFRS = CFO or CFF

Question 7

Dividends Received (CFs)

Answer 7

US GAAP = CFO

IFRS = CFO or CFI

Question 8

Dividends Paid (CFs)

Answer 8

US GAAP = CFF

IFRS = CFO or CFF

Question 9

Taxes Paid (CFs)

Answer 9

US GAAP = CFO

IFRS = CFO or CFI & CFF

Question 10

Bank Overdraft (CFs)

Answer 10

US GAAP = CFF

IFRS = n/a (part of cash and cash equivalents)

Question 11

Direct Method of calculating CFO

Answer 11

identify actual cash inflows and outflows

Question 12

Indirect Method of calculating CFO

Answer 12

begin with net income and make necessary adjustments to get operating cash flow

= net income - depreciation + non-cash charges - working capital investment

Question 13

Cash Outflow (Use of Cash)

Answer 13

= increase in asset account

= decrease in liability accounts

Question 14

Cash Inflow (Source of Cash)

Answer 14

= decrease in asset account

= increase in liability account

Question 15

Operating activities

Answer 15

relate to firm’s current assets and current liabilities

Question 16

Investing activities

Answer 16

relate to the firm’s noncurrent assets

Question 17

Financing activities

Answer 17

relate to the firm’s noncurrent liabilities and equity

Question 18

Free Cash Flow to the Firm (FCFF)

Answer 18

cash available to all investors

= net income
\+ noncash charges (depreciation/amortization)
\+ Interest expense x (1 - tax rate)
- fixed capital investment
- working capital investment

OR

= CFO + Int(1 - tax rate) - fixed cap inv

Question 19

Free Cash Flow to Equity (FCFE)

Answer 19

cash flow available for distribution to common shareholders

= CFO - fixed cap inv + debt issued - debt repaid