Chapter 11 Concepts Flashcards
(8 cards)
Reconcile how cash changed from one period to the next.
See sources of income.
See how management chose to spend cash.
Cash Flows
Companies in initial phase of development; focus is on product development and market entry
Cash from Operating Activity: likely to be negative because of start-up expenses and little to no revenue.
Cash from Investing Activity: likely to be negative because of heavy investment in tech, infrastructure, and R&D.
Cash from Financing Activity: likely to be very positive, as the company raises funds mainly through issuing equity.
Start-Up
Rapid revenue and market expansion
Cash from Operating Activity: trending toward being positive, but still likely negative due to operational expenditures to sustain growth.
Cash from Investing Activity: likely negative, may trend toward positive; company continues to invest heavily in growth opportunities.
Cash from Financing Activity: likely to remain positive, additional sources of financing cash may come by issuing debt as the company has a proven track record and is credit worthy.
Growth
Stable revenue and positive earnings.
Cash from Operating Activity: typically positive as net income is backed by strong net operating cash inflow.
Cash from Investing Activity: likely to oscillate between positive and negative, as company will sell off and buy new plant, property, and equipment; likely to be negative if company engages in M&A activity to eliminate competition and grow through corporate expansion.
Cash from Financing Activity: often negative as company has sufficient cash to return capital to shareholders and retire debt balances, or buy back stock.
Maturity
Revenue starts to decrease year over year, and company struggles to stay profitable.
Cash from Operating Activity: begins to decrease relative to prior years, and may turn negative if revenues do not exceed operating costs.
Cash from Investing Activity: likely positive if out of desperation management starts to sell off assets for capital.
Cash from Financing Activity: negative if the company continues to pay dividends and retire debt; may be positive though if the company needs cash and the needed levels of cash cannot come from operating activities.
Decline
involve transactions that impact the balance of current assets and current liabilities; also includes interest paid and interest received, as well as dividends received from investment.
Operating
involve transactions that impact long-term assets (i.e., intangible assets and PP&E)
Investing
involve transactions that impact long-term liabilities (e.g., notes payable, bonds payable), and equity (common stock, preferred stock, and treasury stock).
Financing
