Cash Flow Statements and Their Formats Flashcards
Two Types of Cash
Operating Cash and Long Term Cash Flow
Operating Cash - Cash Cycle
Operating cycle cash moves from inventory to receivables to cash.. The operating cycle cash releases cash temporarily and does not depend on any injection of new cash.
Long Term Cash Flow - Cash Flow Cash
Comes from profits the permanent improvement in asset efficiently the sale of non-current assets, or additional investments.
Two Cash Flow Statement a Company May Elect to include in Financial Statements
SFAS 95 Direct and SFAS 95 Indirect
SFAS 95 Direct
Starts at the top of the Income Statement with Sales and recast accrual expenses to cash outlays to arrive at cash profit.
Includes Supplemental disclosures of operating cash flow.
UCA Direct
Not Allowable by GAAP
Improves Direct Methods usefullness in assessing debt service ability.
Indetifies interest expense and CPLTD as separate cash flow requirements after it calculates Cash Flow from Operations
SFAS 95 Indirect Statement
Starts at the bottom of income statements and adjusts to reconcile with changes in cash. Focuses on differences between net profit and net cash flow fro operations. Is required by GAAP as it contains supplemental disclslure of operating cash flow. Provides supplemental information that support repayment including interest payments, can payments for income taxes, non-cash financing for investing transactions
Compare UCA Direct and SFAS Direct
Length
UCA includes more details
SFAS relies on disclosure that reconcile net income to net operating cash flow.
Dscilosure provided in supplemental
Compare UCA Direct and SFAS Direct - Interest and Taxes
UCA - Changes in Non-current Liabilities are segregated as miscellaneous cash outlays
Includes Miscellaeous Outlay with Cash Taxes paid in a separate section within Operating Cash flow.
Provides a segrated section to measure financing costs, including dividends, before arriving at net cash income.
SFAS-Includes Interest and cash taxes in operating cash flow.
Compare UCA Direct and SFAS Direct - Loan Principal Payments
UCA - discloses long-term debt repaid in cash after amortization, which follows Net cash income.
SFAS - Consolidates financing activities into one section, Net Cash Provided by Financing Activities.
Compare UCA Direct and SFAS Direct - Loan Payment Priority
UCA Cash flow Islolates operating cash flow before considering capital expenditures. giive CPLTD a priority before capital expenditures
SFAS - Measures all changes in debt and equity at one time, including current and long term portions of the the company’s loans.
SFAS accounts for Capital Expenditures before debt, making it harder to verify the company paid debt before capital expenditures.
Compare UCA Direct and SFAS Direct - Similarities
Compensate for disadvantages of accural accounting.
Separate the cash flow from operating, investing, and financing activities
Separates internal from external sources and uses of cash flow
Reconciles the net result of operating and investing cash to the net change in the cash.
Compare UCA Direct t SFAS Indirect Cash Flow Statements - Adjusting for Depreciation and Amortization
SFAS adds back depreciation and amortization expense as cash
UCA removes noncash expense by showing them as sources of cash.
Compare UCA Direct SFAS Indirect Cash Flow Statements - Balance Sheet Accounts
Both statements measure cash impact of changes in balance sheet items. On the SFAS statemetns Balance sheet items are under Reconciling Items.
The UCA captures receivable as an adjustment to accrual basis revenue.
Compare UCA Direct SFAS Indirect Cash Flow Statements - Accounting for Income
SFAS starts with net income, so there is no need show individucal income and expensee accounts.
UCA statements included relavent income statement accounts
Compare UCA Direct SFAS Measuring Year to Year Changes In Receivables
SFAS measures the change in net AR by combining Gross Receivables and Allowance for Bad Debt
Combines Gross Receivable and Allowance for Bad Debt in one account, Change In AR
Compare UCA Direct SFAS Interest & Taxes
SFAS Includes changes in interest payable in both deferred tax assets and tax liabiities
UCA - details cash taxes and cash interest expense paid by placing the expenditures after Cash after Operations but before Capital Expenditures
Compare UCA Direct SFAS - Loan Payment Priority
SFAS- Does not dispay the company’s principal payments on its debts, does not give a higher priortiy cash outlay than capital expenditures
UCA - Priorities CPLTD over capital expenditures
Compare UCA Direct - Similarities
Both formats compensate for accural accounting
Separate operating, investing and financing activites
Separate internal fro external sources and uses of cash
Allow you to reconcile net effect of operating and investing cash flow to year to year change in cash.
What is Operating Cash Flow
Mesure of cash provided throug company operatinns. Cash ecquivalent of income statement’s profit.
Investing Cash Flow
Cash flows from investment activies, such as buying or selling plant and equipment, intangible assets, rental properties, and stock in affiliates or subs.
Changes in marketable securities when the securities are considered an investment instead of cash equivalent
Financing Cash Flow
Changes in debt in equity
Long or short-term sources evidenced by a note or debt instrument
Does not include retained earnings
Operating Cash Flow Profit
Provides te potential for operating cash flow because the cash cycle interupts the seamless conversion of profit to actual cash.
Operating Cash: Cash Cycle
The second way a company generates operating cash is the cash cycle, movement of cash within the company.
The Cash Cycle
of Days Sales in Receivable + Days COGS in Inventory - Days Purchases in inventory
How Is Operating Cash Flow Shown on SFAS Direct.
Net Cash Provided By Operations
How is Operating Cash Shown on UCA Cash Flow Statement
In Four Steps:
Gross Cash Profit: The Cash Equivalent of Gross Profit
Cash After Operations: The Cash
Equivalent of Operating Profit
Net Cash After Operations: Cash The
Equivalent of Net Profit except it excludes
interest expense
Net Cash Income: Equivalent of Net Profit After Taxes
Positive or Negative Investing Cash Flow will depend on where the company is in the in the Business life Cycle
Growing Companies will have negative
Mature Companies with have both proceeds and uses of cash
Declining Companies will have positive cash flow from Investing.
Investing Cash Flow on SFAS Direct
Net Cash Provided By Investing Activities
Investing Cash Flow on UCA
Expenditures Grouped Together May Include Cash for Capitql Expenditures or Cash for Plant and Equipment
Investing Cash Flow on SFAS Indirect
Net Cash Provided by or Used in Investing
Financing Cash Flow
Includes Sources of external Funds Does not include profit or loss.
Financing Cash Flow Shows
The amount of cash need to meet any investing cash needs not provided by operating cash flow. Cash flow statement cannot tell you how much the company borrower or repaid during the year.
Financing Cash Flow on SFAS Direct
Reflected as Net Cash Provided by Financing Activities or Net Cash Provided by Financing
Measures Change in LTD, including CPLTD
Financing Cash Flow on UCA Statement
CPLTD is handles in a separate section from other financing cash flows. Will need to add to match the other formats
Financing Cash Flow on SFAS Indirect
Reflected as Net Cash Provided by Financing Activities or Net Cash Provided by Financing
Measures Change in LTD, including CPLTD
Gross Cash Profit
Cash From Sales - Cash Production Costs
Gross Cash Margin
Gross Cash Profit / Net Sales
Cash Coverage Ratio
Net Cash After Operations / Financing Costs + CPLTD
Financing Surplus Requirement
Capital Expenditures and Long -term Investments are Group together
Calculate Anticipated Net Fixed Assets
Year 1 Net Fixed Assets - Year 2 Depreciation
Fixed Asset Expenditures
Actual Fixed Assets - Anticipated Net Fixed Assets
