Week 6 - Cash Flow Statement Flashcards
what are the 3 parts of a cash flow statement
Operating Activities
Financing Activities
Investing Activities
what are some operating cash inflows
- reciepts from sales made to customers
- receipts of interests and dividends
what are some operating cash outflows
- wages paid
- inventory purchases
- interest to creditors
- taxes paid
what are investing activities
Acquisition and disposal of PPE assets and intangible assets
Purchase and sale of stock and bonds and other securities
Lending and subsequent collection of money
What are financing activities
obtains resources from owners
returns resources to owners
borrows resources from creditors
repays amounts borrowed
How is interest and dividends classified under IFRS
Interest received may be classified either as an
operating activity or investing activity.
Interest paid may be classified either as an
operating activity or financing activity.
Dividends received may be classified either as
an operating activity or investing activity.
Dividends paid may be classified either as an
operating activity or a financing activity
how is interest and dividends classified under GAAP
Interest received must be classified as an
operating activity.
Interest paid must be classified as an operating
activity.
Dividends received must be classified as an
operating activity.
Dividends paid must be classified as a financing
activity
what are the two ways to write a cash flow statement
direct
indirect
Analysis of Operating Cash Flow
Operating cash flow is generally viewed as being less easily manipulated than
operating income or net income
Large difference between earnings and OCF or increases in such difference can be
an indication of earnings manipulation
what are some positive signs for analyzing operating cash flow
OCF should be the primary source of cash flow for mature company.
OCF should be positive and higher than Net Income.
OCF may be negative in order to grow for new or growth-stage companies
OCF should be consistently increasing.
OCF should be sufficient to cover Capex
analysis of investing cash flows
Negative cash flows from investing activities is not necessarily bad as necessary investment support growth
- Compare Capex with Depreciation
- If there is major Capex, how does the company fund the Capex, through OCF,
asset selling or financing? - How much ICF is for Capex, how much is for liquidity investment, i.e. stock and bonds
- If the company sold significant amount of assets, analyst should investigate the purpose of asset selling.
Analysis of Financing Cash Flows
Negative cash flow from financing activities is not necessarily bad: could be to reduce financial leverage or distributing dividends and share repurchase to avoid excess liquidity
- assess why capital is being raised or repaid
what are the two ways to construct an common-size analysis of cash flows
- as a percentage of net revenue
- as a percentage of total inflow or outflow
In the INTRODUCTION stage what is operating, investing, and financing cash flows
operating -
investing -
financing +
in the GROWTH stage what is the operating, investing and financing cash flows
operating +
investing -
financing +
