WGU C214 Financial Managment Topic 3
Statement of Cash Flows (SCF)
Cash from Operation (CFO)
Cash from investing (CFI)
Cash from financing (CFF)
- cash flow reveals the true health of a company;
- explains cash in & cash out from operations (CFO), investing & financing for a given year.
...
-line items on the cash flow statement serve to show why & where the increase occurred & what type of
activity (i.e., operating, investing, or financing) caused it.
Operational
- decisions on what to produce, how to produce it, whom to sell it to, whom to use for suppliers
- CFO measures the net cash impact of operating decisions
Investing
- decisions on purchasing & selling of long term assets such as conveyor belts or the construction of new
production facilities
- CFI measures the net cash impact of investing decisions.
Financing
decision on issuance of debt & equity, repayment of debts, repurchasing stock & payment of dividends
- CFF measures the NET CASH IMPACT of financing decisions.
Core activities
- firm's core activities will impact the way cash flows are categorized
-
Cash flow management
- some managers will "manage" (increase/decrease) reporting of cash flows
- For instance, a manager whose bonus is impacted by CFO may be tempted to recategorize some items
to make CFO appear larger.
, Market pressure
- pressures to manipulate cash flow categorization in the market place
- For instance, a firm that is in the process of raising capital does NOT want to show a decrease in CFO.
Hence, managers may be willing to use their discretion over accounting choices to increase the reported
level of CFO.
Differences in CFO & Net Income
CFO includes all cash flows related to producing & selling the firm's product, such as cash coming in from
customers, cash flowing out for raw materials & operating expenses, & cash flowing out for taxes.
1. revenue is not the same as cash collected from sales because of changes in accounts receivable (AR)
2. gains/losses are only seen in net income
3. depreciation is only seen in net income
Calculating CFO from balance sheet
Net income + non-cash expenses (depreciation) + decrease in operating asset accounts (other than cash)
- increase in operating asset accounts (other than cash) + increase in operating liability accounts (other
than notes payable) - decrease in operating liability accounts (other than notes payable)
CFO=
= NI + depreciation expense + changes in operating accounts
±
changes in operating assets (Note: add decreases and subtract increases)
±
changes in operating liability accounts (Note: add increases and subtract decrease)
A change in notes payable will impact CFO.
FALSE
* Solution: A change in notes payable will NOT impact CFO (Note: notes payable is a financing variable;
hence, changes in notes payable impact CFF).
Operating asset accounts
* Increase = an outflow of cash
* Decrease = an inflow of cash
Operating liability accounts (e.g., accounts payable and accrued wages) are
*Increases = an inflow of cash
*Decreases = an outflow of cash
Les avantages d'acheter des résumés chez Stuvia:
Qualité garantie par les avis des clients
Les clients de Stuvia ont évalués plus de 700 000 résumés. C'est comme ça que vous savez que vous achetez les meilleurs documents.
L’achat facile et rapide
Vous pouvez payer rapidement avec iDeal, carte de crédit ou Stuvia-crédit pour les résumés. Il n'y a pas d'adhésion nécessaire.
Focus sur l’essentiel
Vos camarades écrivent eux-mêmes les notes d’étude, c’est pourquoi les documents sont toujours fiables et à jour. Cela garantit que vous arrivez rapidement au coeur du matériel.
Foire aux questions
Qu'est-ce que j'obtiens en achetant ce document ?
Vous obtenez un PDF, disponible immédiatement après votre achat. Le document acheté est accessible à tout moment, n'importe où et indéfiniment via votre profil.
Garantie de remboursement : comment ça marche ?
Notre garantie de satisfaction garantit que vous trouverez toujours un document d'étude qui vous convient. Vous remplissez un formulaire et notre équipe du service client s'occupe du reste.
Auprès de qui est-ce que j'achète ce résumé ?
Stuvia est une place de marché. Alors, vous n'achetez donc pas ce document chez nous, mais auprès du vendeur LectDan. Stuvia facilite les paiements au vendeur.
Est-ce que j'aurai un abonnement?
Non, vous n'achetez ce résumé que pour €11,24. Vous n'êtes lié à rien après votre achat.
