SS G: Cash Flow Statement

Question 1

What are the three purposes of cash flow statements?

Answer 1

1. Predicts future cash flow
2. Evaluates management decisions
3. Shows relationship of net income and cash flows

Question 2

Steps for indirect method in determining operating activities:

Answer 2

1. Start with net income
2. Add depreciation expenses
3. Remove any gains and add losses on sale of long-term assets
4. Add any decrease in current assets, and remove any increase
5. Add all increases in current liabilities and deduct all decreases

Question 3

Free Cash Flow equation

Answer 3

Free Cash Flow = net cash by operating activities - cash payments for investments in PPE

Question 4

Cash Realization Ratio

Answer 4

Cash Realization Ratio = Cash flow from operations / net profit