pillars of wall street - financial statement analysis - cash flow statement

Question 1

what does income statement tell you?

Answer 1

the profitability of a business

tells us revenue earned and expenses incurred (COGS, SG&A, interest, taxes)

does not tell us anything about cash flow

Question 2

what does balance sheet tell you?

Answer 2

it’s a financial snapshot of a business

gives assets, liabilities and equity position at one point in time

Question 3

why do you need a cash flow statement?

Answer 3

the income statement isn’t enough

cash flow statement tells you:
information on cash generated or on how cash is used - for operating (core business operations) or investing and financing activities
understanding of accrual impact on cash flows

Question 4

two things you must know to build a cash flow statement

Answer 4

cash flow statement is a reconciliation of two balance sheet accounts

you must apply the rules of cash

Question 5

rules of cash

Answer 5

assets are always uses of cash (assets go up, cash goes down)

liabilities & equity are always sources of cash (liabilities go up, cash goes up)

Question 6

operating cash flows

Answer 6

inflows:
cash collected from customers
interest received

outflows:
cash paid to employees and suppliers
cash paid for other expenses
interest paid
taxes paid

Question 7

investing cash flows

Answer 7

inflows:
proceeds from sale of fixed assets

outflows:
cash spent to acquire fixed assets (capital expenditures)

Question 8

financing cash flows

Answer 8

inflows:
principal amounts of debt issued
proceeds from issuing stock

outflows:
principal paid on debt
payments to buyback stock
dividends paid to shareholders