There are two methods of preparing the statement of cash flows:
Indirect method : derives cash flows from accrual based statements
Direct method : derives cash flows directly for each source or use of cash
Preparing a Statement of Cash Flows
The Statement of Cash Flows: Indirect Method Accrual Based Statements Cash Flow Statement Income Statement items & Changes in Current Assets and Current Liabilities Operating activities : Adjust net income for accruals and non-cash charges to get cash flows Balance Sheet: Changes in Non-Current Assets Investing activities : Inflows from sale of assets and Outflows from purchases of assets Balance Sheet: Changes in Non-Current Liabilities and Equity Financing activities : Inflows and outflows from loan and equity transactions
Ratio analysis expresses the relationship between selected financial data.
These relationships can be expressed as:
05/15/08 Type What is measured Examples Types of Ratios Coverage ratios Degree of protection for long-term creditors and investors Debt to total assets Times interest earned Liquidity ratios Short-term ability to pay maturing obligations Current ratio Quick assets ratio Profitability ratios Degree of success or failure for a given period Rate of return on assets Earnings per share Activity ratios Effectiveness in using assets employed Receivables turnover Inventory turnover