Lecture 9 - Cash Flows (Chapter 11) Flashcards
Cash receipts and payments, business activities, cash flows methods
What does “cash receipts” refer to?
Where cash comes from.
What does “cash payments” refer to?
How cash is spent.
What are cash equivalents?
Highly liquid short-term investments.
Account for the three types of business activities that companies engage in.
- Operating
- Investing
- Financing
Which business activity is the most vital?
Operating activities.
What do financing activities affect?
Long-term liabilities and equity.
Provide examples of cash receipts.
Issuing shares, proceeds from selling treasury shares and loans.
Provide examples of cash payments.
Repurchasing shares, repaying loans.
Account for the “direct cash flows” method.
Represents actual cash receipts and payments from operating activities.
Account for the “indirect cash flows” method.
Starts with the company’s net income and then adjusts for non-cash expenses and gains or losses on asset sales.
What are some of the cash flows signs of a financially healthy company?
Operating activities being the major source of cash and investing activities including more purchases than sales of long-term assets.
What does “free cash flows” refer to?
It refers to the amount of money/capital a company has to invest for.
Cash flows from operating activities has what effect on the balance sheet?
It affects long-term assets.
Cash flows from financing activities has what effect on the balance sheet?
It affects liabilities and equity.
