Lecture 05 - Cash flow statement Flashcards
Cash Flow Statement,
a general explaination: information, for whom, cases (3)
- Provides information about how a company generates and uses cash
- Enables investors and creditors to assess:
- Ability to settle liabilities
- Capacity to pay dividends
- Need for outside financing
- Allows observation and assessment of management’s investing and financing policies.
Describe CFS (3)
- less connected to
- balance sheet,
- Income Statement
- Statement of Stockholder’s Equity
- Provides information how a company
- generates
- uses cash
- Used by:
- Creditors, to see if a firm can settle its liabilities and pay dividends
- Investors, to see if a company needs outside financing
Framework for the Statement of Cash Flows (3)
Cash receipts and payments are classified into 1 of 3 categories (=> Change in cash and cash equivalents)
- Operating activities
- Investing activities
- Financing activities
Comparison Income Statement vs. Cash Flow Statement (4)
Income Statement:
- economic earnings of a company
- profitability (revenues & expenses)
Cash Flow Statement:
- how much cash being generated or used
- performance (cash in/out flow)
What categories - as cash receipts and payments classified into? (3)
- Operating Activites
- Investing Activities
- Financing Activities
Where is the focus in operating activities?
- Where are operating activities reported? (2)
The focus is on selling goods or rendering services.
-
Income Statement
Accrual Basis
(Verbuchung von angefallenen, aber noch nicht bezahlten Einnahmen oder Ausgaben.) -
Statement of Cash Flows
Cash Basis
Investing Activities (2)
Investments in own longer-term assets:
- Buying other company’s stocks, lending etc.
-
Cash inflow, from divesting
(sale or disposal of assets or business segments)
Financing Activities (2)
-
shareholders cash
Receiving / Returning -
creditors cash
Borrowing / Repaying
How can you prepare a statement of cash flows? (2)
Option 1: Direct Method - often not practical
- Examine all cash transactions that occur during the period.
- Group them according to the type of activity.
Option 2: Indirect Method - commonly used approach
- Reconcile the income statement and balance sheet information
- Changes in balance sheet accounts are explained on the income statement and statement of cash flows
- Group them according to the type of activity.
What are the main steps to prepare the cash flow statement using the indirect method?
Make adjustments for operating activities .. (2)
- expenses, gains and losses
- changes in current assets and liabilities
Operating Assets (3)
- Receivables,
- Inventories,
- Prepaid expenses
Operating Liabilities (6)
- Accounts payable,
- wages payable,
- accrued expenses,
- unearned revenue,
- taxes payable,
- interest payable
What is the information provided via CFS? (2)
provides a summary of a
- company’s cash inflows and outflows
- over a specific period,
.
typically broken down into
- operating,
- investing,
- financing activities.
What is the purpose of a cash flow statement? (2)
- show how changes in a company’s balance sheet and income statement affect its cash position.
- It helps assess a company’s liquidity, solvency, and financial health.
Explain the Idea of CFS (Cash Flow Statement) (2)
- CFS consists of three main sections: operating activities, investing activities, and financing activities.
- Operating activities cover cash flows from day-to-day business operations.
- Investing activities involve cash flows related to asset investments.
- Financing activities include cash flows from raising capital or repaying debts.
What is the general Sturcture for CFS? (9)
