Chapter 5

Question 1

Two ways to prepare a statement of cash flows

Answer 1

Direct

Indirect (reconciliation) simpler to prepare

Question 2

Direct method cash flow statement includes the following 5 categories

Answer 2

Receipts from customers 
Payments to suppliers 
Payments to employees 
Payments of interest 
Payments of income taxes

Question 3

Cash to cash cycle

Answer 3

Time between when a company pays out cash to purchase goods until those goods are paid for by customers

Question 4

Free cash flows

Answer 4

Measure amount of cash that a company generates from operations in excess of cash required to maintain productive capacity

Question 5

Net free cash flow =

Answer 5

Cash flows from operating activities - net capital expenditures - dividends on preferred shares