Cash flow statement

Question 1

Cash flow statement

Answer 1

The cash flow statement (CFS) is a required financial statement that provides insight that the I/S cannot – namely, exactly how much cash a company generates and from what activities. Companies have two options for reporting cash flows:
• Direct method
• Indirect method - virtually all choose the indirect method

Both approaches require cash flows to be classed into three components:
• Cash from operations
• Cash from investing activities
• Cash from financing activities

Question 2

Cash from operations

Answer 2

• How much cash did the company generate from operations during the period?
• Uses net income as a starting point and converts accrual-based net income into cash flow from operations via a series of adjustments (i.e., non-cash and accrual). The starting point on the CFS is thus to start with net income and back all the noncash expenses and income out of net income, to get at “cash income” or “cash from operations”. The starting point on the CFS is thus to start with net income and back all the noncash expenses and income out of net income, to get at “cash income” or “cash from operations”

Question 3

Cash from investing activities

Answer 3

• Capital expenditures / asset sales and purchases

Question 4

Cash from financing activities

Answer 4

• New borrowing / pay-down of debt / new issuance of stock / share repurchases
• Issuance of dividends