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This document provides an overview of cash flow statements including:
1) It summarizes the key components of a sample cash flow statement for XYZ Group for the year ended December 31, 20X1, including cash flows from operations, investing, and financing activities.
2) It explains that cash flow statements provide an alternative view of a company's financial performance compared to income statements by using a cash basis rather than accrual accounting.
3) It discusses some of the key issues in preparing and analyzing cash flow statements, such as the direct vs indirect methods, classification of cash flows, and the effects of creative accounting.
This document provides an overview of cash flow statements including:
1) It summarizes the key components of a sample cash flow statement for XYZ Group for the year ended December 31, 20X1, including cash flows from operations, investing, and financing activities.
2) It explains that cash flow statements provide an alternative view of a company's financial performance compared to income statements by using a cash basis rather than accrual accounting.
3) It discusses some of the key issues in preparing and analyzing cash flow statements, such as the direct vs indirect methods, classification of cash flows, and the effects of creative accounting.
This document provides an overview of cash flow statements including:
1) It summarizes the key components of a sample cash flow statement for XYZ Group for the year ended December 31, 20X1, including cash flows from operations, investing, and financing activities.
2) It explains that cash flow statements provide an alternative view of a company's financial performance compared to income statements by using a cash basis rather than accrual accounting.
3) It discusses some of the key issues in preparing and analyzing cash flow statements, such as the direct vs indirect methods, classification of cash flows, and the effects of creative accounting.
Net income XX Add: Non cash expenses (depreciation etc.) X Less: Non cash income (gains from asset sales etc) (X) Add: deductions shown elsewhere (interest, dividends) X Less: Increases in non cash working capital assets (X) Add: Decreases in non cash working capital assets X (reverse above two for liabilities) .... Cash Flow from Operations XX Capital expenditures (X) Cash from asset sales X Cash Flow from Investing X Cash from equity issues X Increase (decrease) in borrowing X Dividends and interest payments (receipts) (X) Cash Flow from Financing X Net Cash Flow XX (to reconcile with change in Balance Sheet) CASH FLOW STATEMENTS (CFS) Cash here includes cash equivalents, e.g. bank checking/current-account balances. CFSs are the third type of financial statement included in the annual reports of most large companies. They provide an alternative view of company activities to the Income Statement, not using accruals accounting. As such, they largely avoid dependence on accounting policy variations (and some forms of creative accounting, but not all). They apply a very conservative version of the realization principle, so are even less future oriented than Income Statements. An Income statement explains change in retained earnings in the Balance Sheet, a Cash flow statement explains changes in (near) cash balances. The Income Generation Process Realization? Idea Economic Income Plan, Organize, Order resources Public Sector Appropriation System Receive Resources Production Pay cash Finished Product Sale Receive Cash Long Term Contracting Extractive Industries Normal Accruals Basis Cash Flow Basis CFSs Presentational & Measurement Issues What is cash? cf. Measurement of Money Supply. Direct versus Indirect methods of computing cash flows. Direct method mostly reorganization of bank statements! Classification: operating, investing & financing cash flows. Indirect method start with accruals information, and undo accruals.
CFSs Financial Analysis Issues Creative accounting teeming & lading. No clear distinction between categories of cash flow. Treatment of exchange rate changes. Computation of Free Cash Flow CFO less capital expenditures necessary to maintain present productive capacity? Effects of business/product life cycles? Corporate/business strategy. Lumpiness of cash flows, predictive use.