Session 2

Question 1

What are the three elements of cash flow from assets?

Answer 1

1. Operating Cash Flow
2. Capital spending
3. Change in Net Working Capital

Question 2

What is operating cash flow?

Answer 2

It refers to the cash flow that results from the firm’s day-to-day activities of producing and selling.

Note: expenses associated with the firm’s financing of its assets are not included because they are not operating expenses.

Question 3

What is cash flow?

Answer 3

The difference between the number of dollars that came in and the number of dollars that came out.

Question 4

What is the balance sheet identity?

Answer 4

the value of a firm’s assets = the value of its liabilities plus the value of its equity

Question 5

what is the cash flow of a firm’s assets?

Answer 5

= the cash flow to the firm’s creditors + the cash flow to the firm’s stockholders