A Statement Of Cash Flow

A Statement Of Cash Flow
STATEMENT OF
CASH FLOWS
Research conducted by Matthew Firth
CONTENTS
What is a statement of cash flow Page 3
What is the purpose of a statement of cash flow Page 3
How does a statement of cash flow effect business managers and shareholders? Page 4
The structure of a statement of cash flow explained Page 4
How to prepare a statement of cash flow Page 5
Example of a statement of cash flow Page 6
References Page 7
What is a statement of cash flow?
A statement of cash flow or cash flow statement is a detailed report that provides investors and
shareholders with the correct information about cash inflows and outflows and the resulting change
in cash and cash equivalents over a period of time. They are ... Show more content on
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When a statement of cash flow is viewed along with the other financial statements, it provides
information that enables users to evaluate the changes in net assets of an enterprise, its financial
structure including its liquidity and solvency and its ability to affect the amounts and timing of cash
flows in order to adapt to changing circumstances and opportunities.
Under the heading, Benefits of Cash Flow Information, the ministry of corporation affairs describes
that, "Cash flow information is useful in assessing the ability of an organization to generate cash and
cash equivalents that enables users to develop models to assess and compare the present value of the
future cash flows of different companies" (Benefits of Cash Flow Information, Government of
India). As a result of this the cash flow statement enhances the comparability of the reporting of
operating performance by different companies because it eliminates the effects of using different
accounting treatments for the same transactions and events. Consistency in financial statements year
over year plays a large part in accounting as it allows management to easily compare the company's
performance.
How does a statement of cash flow effect business managers and stakeholders?

A statement of cash flow is an extremely important financial statement for management or external
influencers to continually review. Current or potential shareholders like to see the liquidity of a
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Notes On Cash Flow Management
Table of Contents
1.0 History of cash flow management 3
2.0 Introduction 3
3.0 Concept of cash flow 3
3.1 Benefits of cash flow statement 3
3.1 Drawbacks of cash flow statement 4
4.0 Seven ways to improve cash availability 5
5.0 Payment Arrangement 6
6.0 Applying discounting to project cash flow 6
6.1 Result and Analysis 8
7.0 Reference 9
1.0 History of cash flow management
The Dowlais Iron Company had recouped from a commercial droop in 1863, yet had no money to
contribute for another impact heater, in spite of having made a benefit. To clarify why there were no
assets to contribute, the supervisor put forth another money related expression that was known as an
examination accounting report, which demonstrated that the organization ... Show more content on
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Poor Cash flow management may bring about lack of working capital and in this way undermine the
maintainability of a venture. While industry has extensively acknowledged successful cash flow
management as an execution change component, the prevalence of scholastic examinations
concerning the connection between money streams and execution looks at the issue from a static,
benchmarking viewpoint (Ebben and Johnson, 2011; Farris and Hutchison, 2002, 2003; Moss and
Stine, 1993). Compelling cash flow management includes anticipating, arranging, observing and
controlling of money receipts and instalments. Project cash flow is for the most part registered in
light of assessed expense and income over the development time frame.
3.0 Concept of cash flow
Just characterized, cash flow is the development of assets all through a business, while cash flow
management concentrates on the planning of moving assets. This is regularly a matter of incredible
significance to venture administrators, in light of the fact that regardless of the fact that an
undertaking is gaining great specialized ground is on timetable, it will be viewed as a monetary
failure in the event that it comes up short on cash. Projects that experience the ill effects of poor
income at last bring about extra expenses and, perhaps, critical postponements too. In some cases,

be that as it may, notwithstanding getting extra cash or ceasing work until assets are gotten may not
be variable choice.

Examples Of Cash Flow Statement
The first thing to know about the cash flow statement is its division into three separate sections. A
cash flow statement looks at three components of core operations, investing, and financing in order
to come to the final conclusion.
One of the major distinctions in a cash flow statement, compared to income statement and balance
sheet, is the lack of reporting on future incoming and outgoing cash. Furthermore, some of the
things you won't know in a loss and profit statement, but which feature at the cash flow statement
include:
Owner's draws out of the business
Payment of credit card principal
Payment of loan principal
A cash flow looks at only the movements in the three sectors during the determined period, not what
is going to happen ... Show more content on Helpwriting.net ...
You can see all the different sections and how the figures are calculated. As you can see, the bottom
of the statement shows the total cash flow of the company for the accounting period.
The above example statement shows you the company total cash flow, as well as where majority of
the liquidity came from.
Naturally, not all cash flow statements show a positive cash flow. But it is important to remember
that a negative cash flow doesn't necessarily mean the business is failing. Sometimes a negative cash
flow is part of a company's decision to heavily invest in new inventory, for example, which might
increase the cash flow the following year. Therefore, as mentioned, you need to use a cash flow
statement as part of your financial analysis, but not rely solely on it.
Overall, you also want to compare your cash flows from different periods. While a single negative
cash flow statement might not signal trouble, if your cash flow is constantly on the negative, your
business is clearly having liquidity problems. It usually means the business is having difficulties
paying debt and relies too much on

Statement of Cash Flows Essay
Statement of Cash Flows
STATEMENT OF CASH FLOWS 1
The Statement of Cash Flows is a very viable and helpful resource. Decision makers use the
Statement of Cash Flows in many instances to assess the viability of a firm. Within the statement are
many types of elements that are incorporated to create the complete Statement of Cash Flows. Also
within the statement is what is known as the inflows and outflows. In some cases, activity notes may
be incorporated to help complete such representations. To fully understand the Statement of Cash
Flows one must know the definition of it and what it in fact means. The Statement of Cash Flows is
a change statement summarizing the transactions that caused cash to change ... Show more content
on Helpwriting.net ...
The cash flow statement has three components of cash flow which includes how cash enters and
leaves a company such as operating, investing and financing as mentioned above.
The Statement of Cash flows includes measuring the cash inflows and outflows caused by
operations. Cash inflows include cash received from: * Owners when sales are sold to them *
Creditors when cash is borrowed through notes, loans, mortgages, and bonds
Whereas cash outflows includes cash paid to: * Owners in the form of dividends or distributions
STATEMENT OF CASH FLOWS 3 * Owners for the reacquisition of shares previously sold *
Creditors as repayment of the principal amounts of debt (excluding trade payables that relate to
operating activities)
The operations component of cash flow reflects how much cash is generated from a company's
products or services. Generally, changes made in cash, accounts receivable, depreciation, inventory
and accounts payable are reflected in cash from operations.
The cash flow is calculated by making certain adjustments to net income by adding or subtracting
differences in revenue, expenses and credit transactions (appearing on the balance sheet and income
statement) resulting from transactions that occur from one period to the next. These adjustments are
made because non–cash items

Free Cash Flow
Free cash flow
In corporate finance, free cash flow (FCF) is cash flow available for distribution among all the
securities holders of an organization. They include equity holders, debt holders, preferred stock
holders, convertible security holders, and so on.
G. Bennett Stewart – the "economic model of value holds that share prices are determined by just
two things: the cash to be generated over the lifetime of a business and the risk of the cash receipts".
GSB (1990), "The Quest for Value"
FCF is the cashflow generated by a company's operations that is free, or net, of the new capital
invested for growth. Imagine all a company's cash receipts are deposited in a cigar box, and that all
of its cash operating outlays are taken ... Show more content on Helpwriting.net ...
The first is the accounting for the consumption of capital goods. The Net Income measure uses
depreciation, while the Free Cash Flow measure uses last period 's net capital purchases.
Measurement Type | Component | Advantage | Disadvantage | Free Cash Flow | Prior period net
investment spending | Spending is in current dollars | Capital investments are at the discretion of
management, so spending may be sporadic. | Net Income | Depreciation charge | Charges are
smoothed, related to cumulative prior purchases | Allowing for typical 2% inflation per year,
equipment purchased 10 years ago for $100 would now cost about $122. With 10 year straight line
depreciation the old machine would have an annual depreciation of $10, but the new, identical
machine would have depreciation of $12.2, or 22% more. |
The second difference is that the Free Cash Flow measurement deducts

Cash Flows
1. Cash flows are important, in simple terms, because cash is what is used to pay for things. Cash
flow analysis removes non–cash flow items from the income statement (such as depreciation) and
this allows management to understand better the actual business conditions. There are many
instances where the net profit fluctuates, but the cash flow from operations does not. That the net
profit is subject to variance from non–cash items, including from writedowns, highlights the
importance of adding cash flow from operations to the analysis.
In addition, the cash flow analysis allows the company to have a better understanding of its sources
of cash flow. The company can source its cash flow from debt or equity, the latter of which includes
operations. Companies should understand where there money is coming from are they making it or
just borrowing it? In addition, cash flow from investing activities gives management a sense of how
much is being plowed back into the company, not into operations but into building for the future.
2. Liquidity ratios are used to measure the ability of the company to meet its obligations for the
coming year. The main liquidity ratio is the current ratio, which is the current assets over current
liabilities. The quick ratio excludes inventories from the current assets, and the cash ratio is simply
the amount of cash divided by the current liabilities. These ratios are often benchmarked against
industry norms and against past performance.

The Value Of Cash Flow
a) Discounted Cash Flow (DCF) valuations aims to establish the value of operating business on a
'cash free/debt free' basis and therefore it is normally undertaken using ungeared cash flows. The
value of the business should remain the same regardless of its financial structure.
In case that geared cash flow is used in an equity model valuation, it should be discounted at the cost
of equity capital and not a weighted average cost of capital (WACC). This approach estimates the
shareholders' net returns after tax and debt servicing.
The other reason why incorporating the interest payments is inappropriate is due to the fact that it
leads to double counting the time value of money. This mistake is often realised by discounting
positive the positive cash flow in one year and then incorporating interest on the same cash flow in
income in the following year.
b) Strengths
DCF valuation can provide an estimate of intrinsic value of the business by capturing its underlying
fundamentals including WACC, cost of equity and growth rate. The intrinsic value of the business
provides an estimate of present value of cash flows that the company will pay its shareholders and
therefore it should help investors to identify companies that are inexpensive compared to its peers.
DCF relies on free cash flows which provide a reliable measure that mitigates the subjective
accounting practices and often inaccurate estimates of reported earnings. Irrespective of how cash
outlays are

Cash Flows
Cash Flows
Aleshia Wisch
ACC206: Principles of Accounting II
Prof. Eric Sumners
August 11, 2014
ACC 206 Week Assignment
1. Critical Thinking Question:
Answer the following questions:
Why are noncash transactions, such as the exchange of common stock for a building for example,
included on a statement of cash flows? How are these noncash transactions disclosed?
It is important for a company to show what assets they have on hand that can convert to cash. Non
cash transactions are disclosed in the footnotes of the financial statement of cash flows. "...a
company may exchange common stock for land. Such transactions do not trigger a direct inflow or
outflow of cash, but they are nonetheless highly significant ... Show more content on
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The $9,000 loss would be added back to the net income under Operating Activities.
5. Cash flow information: Direct and indirect methods
The comparative year–end balance sheets of Sign Graphics, Inc., revealed the following activity in
the company 's current accounts:
20X5
20X4
Increase / Decrease)
Current assets
Cash
$55,400
$35,200
$20,200
Accounts receivable (net)
83,800
88,000
–4,200

Inventory
243,400
233,800
9,600
Prepaid expenses
25,400
24,200
1,200
Current liabilities
Accounts payable
$123,600
$140,600
($17,000)
Taxes payable
43,600
49,200
–5,600
Interest payable
9,000
6,400
2,600
Accrued liabilities
38,800
60,400
–21,600
Note payable
44,000
–
44,000
The accounts payable were for the purchase of merchandise. Prepaid expenses and accrued
liabilities relate to the firm 's selling and administrative expenses. The company 's condensed
income statement follows.
SIGN GRAPHICS INC.
Income Statement for the Year Ended December 31, 20x5
Sales
$713,800 Less: Cost of goods sold
323,000 Gross profit
$390,800

Less: Selling & administrative expenses
$186,000
Depreciation expense
17,000
Interest expense
27,000
230,000
Add: gain on sale of land

Cash Flow Statement
Cash Flow Statement:
A cash flow statement is a financial report with information on the sources of a firm's cash and how
it was spent within a given period of time. In contrast to other financial reports, a cash flow
statement does not present information on non–cash items like depreciation. As a result, the cash
flow statement is beneficial in analyzing the temporary feasibility of a company, especially its
capability to pay bills. Many analysts recommend entrepreneurs to study a cash flow statement
quarterly because of its importance for small and large businesses.
Since a cash flow statement classifies cash receipts and payments based on operations, investments,
and financing activities, it's categorized into these three functional sections within the business.
Therefore, the major parts of the cash flow statement are cash–related operations, investments,
financing, and net increase or decrease in cash. While cash from operations is cash generated from a
firm's daily operations, the investing cash is generated from assets' investments. On the other hand,
financing cash is paid or received from the issued or borrowed funds whereas net increase or
decrease in cash is from annual rise or reduction in cash. It's important to note that regardless of the
slight differences in cash flow statements, they all present financial information in all the four
categories ("Cash Flow Statement", n.d.).
One of the major advantages of a cash flow statement is that it provides

Cash Flow and Company
Wendy's
Steve McElroy
Ohio Dominican University
This document contains financial analysis of the Wendy's corporation. It highlights many of the
company's financial ratios and other calculations used to measure the success of a company. The
Wendy's Company is the #2 hamburger chain in the United States following #1 McDonalds
(Hoovers). The Wendy's Company (NASDAQ:WEN) is the world's third largest quick–service
hamburger company (Wendy's.com). The company consists of almost 6,500 restaurants in the U.S.
and almost 25 in other countries (Hoovers). The first Wendy's restaurant was opened by Dave
Thomas in 1969. Mr. Thomas, the founder of Wendy's, initiated an innovative approach to the fast–
food industry: prepare fresh, ... Show more content on Helpwriting.net ...
This ratio is an indicator of a company's ability to use cash to address its current liabilities, if needed
(Ehrhardt, 2011). The fact that Wendy's has a Quick Ratio of 1.5 suggests that the company has a
high liquidity. To be more specific, the company's current assets in 2011 were $4,300.67 million
with liabilities totaling $2,304.60 million (Table 3). These figures indicate that the company would
be in a good position if it had to meet its short–term obligations. The company's inventory (Table 1)
Turnover Ratio is 145.3 with an industry average of 47.0 (Hoovers). The fact that Wendy's ratio is
much higher than the industry average shows that the company is good at managing its inventory.
Table 2 shows that in 2011, Wendy's cost of goods sold was $1,816.11 million with an average
inventory of 12.90 (Hoovers). These numbers have been relatively consistent, in terms of Inventory
Ratios; therefore the company does not appear to overstock. One concern may be that the ratio is too
high. If this is the case

Finance: Free Cash Flow
inance COOPERATE FINANCE | Miss Afifa | | Assignment# 4 | | UMAIR ASIF11 March 2013 |
You submitted this Assignment on Sun 10 Mar 2013 7:21 PM PDT. You got a score of 85.00 out of
100.00. You can attempt again, if you 'd like.
Top of Form
Please read all questions and instructions carefully. Note that you only need to enter answers in
terms of numbers and without any symbols (including $, %, commas, etc.). Enter all dollars without
decimals and all interest rates in percentage with up to two decimals. Read the syllabus for
examples.The points for each question are listed in parentheses at the start of the question, and the
total points for the entire assignment adds up to 100. You are strongly encouraged to use ... Show
more content on Helpwriting.net ...
Question 5
(5 points) To get from net operating profits after tax (NOPAT) to free cash flows (FCF), you need to
ADD back depreciation, SUBTRACT capital expenditures and ADD net working capital (i.e.,
current operating assets – current operating liabilities). (Free cash flow is another name for cash
flows.) Your Answer | | Score | Explanation | False. | ✔ | 5.00 | Correct. You understand the nature of
"capital." | True. | | | | Total | | 5.00 / 5.00 | |
Question Explanation
This is an important issue that makes you focus on differences between stocks and flows.
Question 6
(5 points) Last year your firm had revenue of $20 million, cost of goods sold (COGS) of $12
million, Selling, General, & Administration costs (SG&A) of $2 million, Account
Receivables (AR) of $6 million, Account Payables (AP) of $4 million and Inventory of $4 million.
What will be the free cash flow next/this year if you boost revenue 6% and AR 12%, while holding
COGS growth to 3% and everything else remains the same as last year? (Assume no taxes and no
new capital expenditures.) (You are encouraged to use a spreadsheet even for this specific type of
question.) Your Answer | | Score | Explanation | 4170000 | ✘ | 0.00 | Review the basics; see template
and references. | 6120000 | | | | 7240000 | | | | 5250000 |

Notes On Cash Flow Management
Introduction to Cash Flow Management
Cash is king when it comes to managing the financials for a small business. Managing cash can
easily make or break a company in the early stages of the business cycle. Cash flow refers to the
amounts of money moving in and out of the business. When an entrepreneur starts his business, one
way or another capital must be raised in order to fund the daily operations of the business. The
business can either have a positive cash flow where the company brings in more money than it
spends (which is a sign of god financial strength for a company), or it can have a negative cash flow
that is caused by spending more money than what is taken in (the largest cause of business failure)
(Reuters 2016).
To better ... Show more content on Helpwriting.net ...
These four steps focus in on the key elements for cash flow analysis of accounts receivable,
accounts payable, and managing shortfalls.
II. Measuring the Cash Flow Preparing future cash flow projections each year, quarter, month, and
even weekly depending on your company's current financial position gives an accurate cash flow
forecast that can alert the business of potential pitfalls before they actually happen. Cash flow plans
are educated estimates combining a number of factors namely accounts receivables (what customers
and clients owe you), accounts payables (what you owe vendors), and potential threats to your cash
flow. A cash flow projection starts with cash on hand at the beginning of the period along with other
receivables that are likely to be collected within the period. While gathering this information, you
will learn detailed information about your finances, creditors, investors, etc. Essentially, you are
inquiring to figure out how much cash in the form of customer payments, interest earnings, different
fees, partial collections of bad debts, and other sources are you going to get in, and when. The
second most important aspect of creating a cash flow projection is having an in–depth, detailed
knowledge of upcoming cash inflows and outflows. The owner (or person creating the cash flow)
should not only know when each dollar is

A Report On The Cash Flow
INTERNATIONAL FINANCE FN380 Contents Introduction 1 Demand forecast 2 Cost of capital 2
Interest Rate 3 Tax 4 Exchange Rate, 4 Parent Valuation: 5 Introduction The project proposal will be
critical analysed before it will established in South Korea. In the first assignment will looked in
depth in political, country risk, FDI theories and motive for the project. In the second assignment,
the cost of capital for the project was calculated, stating the risk for both the parent and subsidiaries.
This project evaluates the discounted Net Present Value which shows the estimated cash flow. The
cash flow forecast is for 10 year which incorporates International complexities as well as the cost of
capital. This project has decided that the initial investment will be partly financed by parent and
subsidiary, at debt of 35 % from parent (uk) and 35% from host country (south Korea) to complete
the initial investment. Demand forecast The first step in analysing the cash flow is the demand
forecast to telecommunication service in South Korea, this estimation is correlated to with the
competition, historical demand, income and population, Jeff Madura, Roland Fox (2007). These was
analysis because it is an indicated of the profit possibilities for the investment project. The demand
for telecommunication services in South Korea is high this refers to low uncertainty, the proposed
project is large enough to support the management time on the project analysis (

Investment Decision and Cash Flows
INVESTMENT DECISION AND CASH FLOWS A positive net present value (NPV) is a direct
estimate of value creation for shareholders and is an operational way of carrying through on the
strategy of trying to maximize shareholder wealth. To calculate NPV, however we need to estimate
the cash costs and benefits of any decision at hand. In this note we discuss the evaluation of
investment proposals.
Cash Flows: Basic Concepts The cash flows that we will use in our analysis are incremental after–
tax cash flows. The incremental–cash–flow rule is that the cash flows relevant in analyzing an
investment opportunity are those after–tax cash flows and only those after–tax cash flows directly
attributable to the investment. The words incremental, ... Show more content on Helpwriting.net ...
Zippo plans to depreciate (straight–line) the building and equipment to a book value of zero by the
end of five years. The company feels, however, that land values in this area will appreciate and that
in five years it could sell the plant (including the land and equipment) for $500,000. Table 2
summarizes Zippo's projected annual operating flows for the new facility based on a 40% tax rate.
Note that Table 2 is just a pro–forma income statement that incorporates only the operating flows
resulting from the proposed facility.
–3Table 2. Estimated annual operating flows. (thousands of dollars)
UVA–F–0915
1998 Sales minus Cost of Goods Sold (60%) minus Operating Expenses Gross Profit minus
Depreciation∗ Profit Before Tax minus Taxes (40%) Profit After Tax 1,000 −600 −50 350 −160 190
−76 114
1999 1,000 −600 −50 350 −160 190 −76 114
2000 1,000 −600 −50 350 −160 190 −76 114
2001 1,000 −600 −50 350 −160 190 −76 114
2002 1,000 −600 −50 350 −160 190 −76 114
Should Zippo build the facility? Are the expected benefits in the future large enough to justify
expenditures in 1997? This is exactly the kind of question capital–budgeting techniques are designed

to answer. Our task is to relate these details to incremental after–tax cash flows. Then we can use the
net present value

Analyzing The Statement Of Cash Flows The Cash Flow Statement
The use and purpose of the Statement of Cash Flows The cash flow statement identify the sources of
cash flowing into the business and shows how they have been used over a period. Companies or
users need to read this statement in conjunction with trading and profit and loss accounting and
balance sheet and also in the context of the statement in the previous year. (Cox, 2004) This
statement provides a useful tool for analysing management decisions and strategy. It can reveal such
things as the amount of liquid funds generated from operating activities; the ways in which
financing occurred and investment activities during a period. This information can help companies
or users to assess whether liquid funds generated are sufficient and whether they have been raised
and applied in an appropriate way. The importance of liquidity to a business is difficult to overstate.
It is not allow a profitable business to be forced to crease trading because it does not have enough
liquid funds to meet its maturing liabilities. (Atrill et al, 2001) The objective of International
Accounting Standard 7 is require the provision of information about the historical changes in cash
and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows
during the period from operating, investing and financing activities. The standard aim to give the
financial statements of the companies with a basis for assessing the ability of the entity to generate
cash and cash

Vonage Cash Flow Summary
Vonage has been operating at a loss from 2006–2008. This loss is shown in its income and cash
flow.
There is a difference in cash flow and lossess in 2006 of (149,675). This is because Vonage has
uncollected account recievable, a large inventory holdins and customer acquisiton cost that
increased along with some amortization changes and depreciation.
Vonage has continued to work hard and progressing toward control and getting its cash flows in a
better standing in 2007 and 2008.
It does look to have worked because Vonage reported a positive flow of cash in 2008.
Vonage cash flow statement increased and improved from its reportings in 2006. This would show
that Vonage's telecommunication busines was improving.
It has also

Direct Method of Cash Flow
This article presents the argument of widespread use of the direct method with regards to presenting
a statement of cash flows. In the author's research they found that many balance sheets and cash
flow statements do not articulate. Changes in the current asset and liability account balances are
often presented significantly different on the cash flow statement than on the balance sheet. Upon
examining a sample of approximately 10,000 sets of public financial statements it was found that
many unexplained differences existed between the expected operating cash flow measures and the
amount reported in the company's respective cash flow statement. The purpose of this paper is to
alert FASB that requiring companies to use the direct method for reporting operating cash flows can
greatly improve accounting practice. This requirement improves the quality of financial reporting
for all parties involved. This article encompasses several different audiences. Perhaps the most
significant one is the Financial Accounting Standards Board. The authors believe that the FASB's
conclusions revolved around incorrect interpretations about the simplicity of the indirect method and
the complexity of the direct method. In consideration of this assumption the author's believe that
FASB should readdress the issue of reporting requirements concerning the statement of cash flows.
Another large audience for this article is the field of accounting education. The authors conclude
that accounting

The Value Of The Cash Flow
Part: B
Net Present Value (NPV) calculates the present value of the cash flow which is based on the
opportunity cost of capital and comes up with a value that is added to the wealth of the shareholders
if that project is accepted.
Apart from Net present Value (NPV) there are a couple of more methods for investment appraisal
such as internal rate of return (IRR), Payback period (PBP) and Profitability Index (PI).
Net Present Value (NPV) vs. Payback Period (PBP):
Payback period calculates the period in which the initial amount invested in the project is recovered.
The project is accepted or rejected based on the benchmark set by the firm. If the payback period is
less than or equal to the benchmark the firm will accept the project and ... Show more content on
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Such a problem does not exist with NPV.
Net Present Value (NPV) vs. Profitability Index (PI)
Profitability index is a ratio between the discounted cash inflow to the initial cash outflow. It
presents a value which says how many times of the investment is the returns in the form of
discounted cash flows.
The disadvantage associated with this method again is its relativity. A project can have same
profitability index with different investments and vast difference in absolute dollar return. NPV has
an upper hand in this case.
Conclusion:
We have noted that almost all the difficulties are survived by net present value and that is why it is
considered to be the best way to analyze, evaluate, and select big investment projects. At the same
time, the estimation of cash flows requires carefulness because if the cash flow estimation is wrong,
NPV is bound to be misleading.
A small problem with NPV is that it also considers the same discounting rate for both cash inflow
and outflows. We know that there are differences between borrowing and lending rates. Modified
internal rate of return is another method which is little more complex but improved which takes care
of the difference between borrowing and lending rates also as it discounts cash inflows at lending
rates and cash outflow at borrowing rates.
Part: C
According to International Energy Agency (2015), energy demand will grow by

M1 : Analyse Cash Flow Problems
M1 – Analyse cash–flow problems
Introduction:
A cash flow is an accounting statement and is normally called the statement of cash flows. A cash
flow statement shows the amount of cash generated and used by a company in a given period. The
cash flow is calculated by adding noncash charges to net income after taxes. It is important and
crucial for businesses to have a healthy cash flow because it helps with the survival of a business. A
business might experience cash flow issues due to the direct link between the low profits or losses
and cash flow problems; the loss makes the business eventually run out of cash. They can also
experience cash flow problems due to the business holding too much stock, this tie up cash and there
is an increased risk that stocks cannot be sold. Businesses can also experience cash flow problems
due to the over investment.
Findings:
Signature has experienced some problems with their cash–flow, the problems that they faced are:
– The balances are negative.
– The opening balance in January is 0.
– The outflows are high and inflows are low.
– The credit sales and commission received in January is 0.
– The investment is low and needed to be higher.
I will be analysing these problems to give a reason as to why they have faced these problems and
how they can resolve these problems.
One of the problems that Signature has faced with their cash flow is their negative balance in the
first few months. In the forecast there are some negative balances in

What Is A Cash Flow Statement?
What is a Cash Flow Statement?
One of the most important part of starting a business is creating a cash flow statement, also known
as the statement of cash flow. The statement of cash flows is defined as a statement of sources and
uses of cash in a business for a specific period of time (Katz, J. & Green, R.). The statement of cash
flow is the main one, of four financial statements, the other statements are just as important when
owning and operating a business. The way that a business owner can prove the business is making
money would be through keeping careful accounting records. Based on an accountant, there are five
reasons why accounting is important to a small business.
It proves how your business is doing financially.
Shows ... Show more content on Helpwriting.net ...
Income Statement is composed of the following two elements:
 Income: The business earnings over a specified period
 Expense: The cost of operating the business over a period
 Net profit or loss is obtained by deducting expenses from income
Statement of stockholders ' equity; Statement of Changes in Equity, also known as the Statement of
Retained Earnings, details the movement in owners ' equity over a period. The movement in owners
' equity is derived from the following components:
 Net Profit or loss during the period as reported in the income statement
 Share capital issued or repaid during the period
 Dividend payments Gains or losses recognized directly in equity
 Effects of a change in accounting policy or correction of accounting error ("What Is A Cash
Flow" 2004).
Components of Cash Flow Statement
The inflow and outflow of cash must be reported in the statement of cash flow. It can be reported as
either a direct statement; only from the business's cash records or indirect statement; starts with net
income and adjusts the accruals and deferrals that can be reconciled with the others statements. The
following are activities that are recorded in the cash flow statement:
1. Operating activities includes all transactions performed in producing, and selling goods and
services. It shows the movement of

The Cash Flow Of The Free Cash Flows ( Fcf )
Firm Valuation
As shown in Exhibit 4, in order to value a company we first started by calculating the free cash
flows (FCF) year by year. In order to do so, we decided to use the forecasted revenue numbers from
Capital IQ and calculate all the other metrics by using the trends we saw in last three years (Exhibit
3). The company can allocate free cash flow in several ways, including but not limited to:
repurchasing stock, reinvesting for growth and paying out dividends.
After calculating the free cash flows, we had to calculate the terminal value of the company. Doing
so required us to estimate a terminal growth rate. We decided that 3.1% growth rate was suitable for
Kimberly–Clark. This rate was integrated by 2% expected inflation growth per year in the US
(Federal Reserve), in addition with a 1.1% expected growth of the population (World O Meters). As
a team we believe that since KMB is in a personal care industry, it can be perceived as a commodity,
thus the population growth should directly affect our sales. Necessary goods will still have relevance
in the future.
After terminal value was calculated, we proceeded by valuing KMB using the entity approach. As
shown in the Exhibit 5, the value of the assets is $55,128.44. This was calculated by discounting all
the unlevered cash flows and the terminal value by our WACC of 6.8257%. For the total value of
debt we used the market value of $7064.3 million. After the value of the equity was calculated, we
got the implied debt

Discounted Cash Flow
discounted cash flow (DCF
In finance, discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset
using the concepts of the time value of money. All future cash flows are estimated and discounted to
give their present values (PVs) – the sum of all future cash flows, both incoming and outgoing, is
the net present value (NPV), which is taken as the value or price of the cash flows in question.
Using DCF analysis to compute the NPV takes as input cash flows and a discount rate and gives as
output a price; the opposite process – taking cash flows and a price and inferring a discount rate, is
called the yield.
Discounted cash flow analysis is widely used in investment finance, real estate development, and
corporate ... Show more content on Helpwriting.net ...
Using the DPV formula above (FV=$150,000, i=0.05, n=3), that means that the value of $150,000
received in three years actually has a present value of $129,576 (rounded off). In other words we
would need to invest $129,576 in a T–Bond now to get $150,000 in 3 years almost risk free. This is
a quantitative way of showing that money in the future is not as valuable as money in the present
($150,000 in 3 years isn't worth the same as $150,000 now; it is worth $129,576 now).
Subtracting the purchase price of the house ($100,000) from the present value results in the net
present value of the whole transaction, which would be $29,576 or a little more than 29% of the
purchase price.
Another way of looking at the deal as the excess return achieved (over the risk–free rate) is (14.5%–
5.0%)/(100%+5%) or approximately 9.0% (still very respectable).
But what about risk?
We assume that the $150,000 is John's best estimate of the sale price that he will be able to achieve
in 3 years time (after deducting all expenses, of course). There is of course a lot of uncertainty about
house prices, and the outcome may end up higher or lower than this estimate.
(The house John is buying is in a "good neighborhood," but market values have been rising quite a
lot lately and the real estate market analysts in the media are talking about a slow–down and higher
interest rates. There is a probability that John might not be able to get the full

Vonage Cash Flows
Consequently, to reviewing the Vonage's statement of cash flows for the years, 2008, 2007, and 2006
one will answer the following questions. First, how does Vonage's net income for each year compare
to its cash flows from operating activities? Secondly, does Vonage appear to be improving its
position in the telecommunications business? Third, how did Vonage pay off over $250 million in
debt in 2008? Furthermore, where did they obtain the funds to repay the debt? Lastly, does Vonage
cash position appear to be improving or deteriorating? Chapter fourteen focused on statements of
cash flow from various corporations. Even though many organizations report net losses on their
earning statements, they also report positive cash flows from operating activities. Vonage is a real
example of how a company can be both positive and adverse in the statement of cash flows. To
answer the first question, how does Vonage's net income for each year compare to its cash flows
from operating activities. One must first analysis the statements of cash flow in detail. An individual
first observes the cash flows from operating activities referencing to the net income (loss). The
following amounts become apparent. The year 2008 the net income was $ – 64,576 million. The
year 2007 the net income was ... Show more content on Helpwriting.net ...
Vonage started in 2002 and is still operating ten years later. Sure, the firm has had some rough years.
However, looking at the numbers, it shows improvements on operations sections. Again, viewing
one report namely statement of cash flows provides limited information one would also need to see
the other financial reports, the balance sheet as well as the income statement to look at the big
picture (Edmonds, Tsay, & Olds, 2011). One must consider these reports as they provide current and
historical trends regarding the organization's profits and

The Technology of Cash Flows Essay
In today's economy, cash is often considered to be king. This rings true for consumers and
companies alike. The flows of a company's cash are summarized on a company's statement of cash
flows (Gibson, 2011). The cash flow statement provides information regarding the effectiveness of
company management in operating the business, how the company's money is derived, and the way
funds are being spent (Megan, Hategan, Caciuc, & Cotlet, 2009). A company's management uses the
statement of cash flows to assist with budgeting as it can predict cash flows in the future (Megan et
al., 2009). Additionally, investors use it to assess the financial health of a company (Gibson, 2011;
Megan et al., 2009). Technology companies have experienced ... Show more content on
Helpwriting.net ...
The significant competition requires continued efforts in innovation and investments in new
technologies, products and services (Google, 2014). To keep up with the rapid growth, it maintains a
large staff of more than 47,000 (as of the end of 2013) with 39% of its employees in research and
development and 32.1% in sales and marketing (Google, 2014).
Ultimately, companies are in the business to make money. To do this, they trade goods or services
for cash, credit, or other goods and/or services of comparable value (bartering). Although some
businesses rely more heavily on cash transactions, businesses would be unable to remain a going
concern without long run cash inflows exceeding outflows (Megan et al., 2009). Essentially, the
statement of cash flows bridges the gap between accruals and cash flows and allows for the quality
of earnings to be evaluated (Ohlson & Aier, 2009). It accomplishes this task by making adjustments
to the net income figure from the income statement to add back non–cash related transactions
(Gibson, 2011; Megan et al., 2009). As noted by Ohlson and Aier (2009), "cash in a literal sense
must have been exchanged for it to have an effect on the statement of cash flows" (p. 1093).
Therefore, expenses such as depreciation and amortization that do not involve the use of cash are
added

The Purpose Of The Cash Flow Statement
There is an old saying by Earl Wilson (2015) that states "Today, there are three kinds of people: the
haves, the have–nots, and the have–not–paid–for–what–they–haves" (p. 1). This saying also applies
to businesses, and investors will try to identify which category a company falls in as they conduct
their research. Investors want to know they are committing their money to an organization that can
effectively manage its cash. Cash is the fuel within every organization. It is extremely important for
every executive, manager, and investor to understand the cash flow battle rhythm within their
organization by utilizing the statement of cash flow. Analyzing the statement of cash flow, will
enable investors to determine if a company is effective at managing their finances.
Purpose of the Cash Flow Statement
Cash inflow and outflow is a litmus test of a company's performance during a specific time frame.
Cash is the lifeline of the company and the availability or lack of cash is a clear indication of a
successful or failing business for most financial analysts, investors and company management. The
statement of cash flow is the means used by many to view the cash movement within an
organization. According to Epstein (2014), "The purpose of the statement of cash flows is to
determine how cash flowed into and out of the company during a certain period of time" (p.156).
This management tool can assist executives, financial managers and stock holders identify the
organization's

Accounting: Depreciation and Cash Flow
(10–8) NPVs, IRRs, and MIRRs for Independent Projects
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead
pulley system, in this year's capital budget. The projects are independent. The cash outlay for the
truck is $17,100 and that for the pulley system is $22,430. The firm's cost of capital is 14%. After–
tax cash flows, including depreciation, are as follows:
Year Truck Pulley
1 $5,100 $7,500
2 $5,100 $7,500
3 $5,100 $7,500
4 $5,100 $7,500
5 $5,100 $7,500
Calculate the IRR, the NPV, and the MIRR for each project, and indicate the correct accept–reject
decision for each. Year Truck Pulley
0 –$17,200 –$22,430
1 $5,100 $7,500
2 $5,100 $7,500
3 $5,100 $7,500
4 $5,100 ... Show more content on Helpwriting.net ...
If company fails to adjust expected inflection on their cost of capital then the cost of capital which
the company is using to discount expected cash flows will be lower than the inflection adjusted cost
of capital. As company is using lower cost of capital rate to discount their cash flows, the discounted
cash flow will be higher and calculated NPV will be lower.
Problem 11– 7
"New–Project Analysis"
You have been asked by the president of your company to evaluate the proposed acquisition of a
new spectrometer for the firm's R&D department. The equipment's basic price is $70,000, and
it would cost another $15,000 to modify it for special use by your firm. The spectrometer, which
falls into the MACRS 3–year class, would be sold after 3 years for $30,000. Use of the equipment
would require an increase in net working capital (spare parts inventory) of $4,000. The spectrometer
would have no effect on revenues, but it is expected to save the firm $25,000 per year in before–tax
operating costs, mainly labor. The firm's marginal federal–plus–state tax rate is 40%.
a. What is the net cost of the spectrometer? (That is, what is the Year–0 net cash flow?)

b. What are the net operating cash flows in Years 1, 2, and 3? (26220,30300,20100)
c. What is the additional (nonoperating) cash flow in Year 3? 24380
d. If the project's cost of capital is 10%, should the spectrometer be

Accounting: Cash Flows Essay
Harvard Business School 9–193–103 os t Rev. November 3, 1998 rP Statements of Cash Flows:
Three Examples yo John Stacey, a sales engineer for Aldhus Corporation, was worried. A flight
delay had caused him to miss last week's accounting class in the evening MBA program in which he
had enrolled at the suggestion of the personnel director at Aldhus, a growing manufacturer of
computer peripherals. The class he had missed had been devoted to a lecture and discussion of the
statement of cash flows, and he was sure the material he had missed would be covered in the weekly
quiz that was part of each class session. A classmate had faxed Stacey some notes distributed by
their instructor, but they were too cryptic to be ... Show more content on Helpwriting.net ...
yo Investing activities shows cash flows for the purchase and sale of assets not generally held for
resale and for the making and collecting of loans. (Maybe it should more appropriately be called the
investing and disinvesting activities section.) Here is where you would see if the company sold a
building, purchased equipment, made a loan to a subsidiary, or purchased a piece of equity in its
supplier. Finally, financing activities shows the cash flows associated with increasing or decreasing
the firm's financing, for example, issuing or repurchasing stock and borrowing or repaying loans. It
also includes dividends, which are cash flows associated with equity. However, ironically, it does
not include interest payments; these are included in operating activities. op John Stacey: That seems
strange to me. Since loans are the reason interest payments are made, why are they not included in
the financing activities section? You know, interest is to loans as dividends are to equity? No tC
Lucille Barnes: Actually in some other countries such as the United Kingdom interest is included in
the financing activities section! But in the United States the Financial Accounting Standards Board
voted that interest payments should be in the operating activities section instead. This is one of these
situations where you might

Cash Flow Statement And Its Benefits And Disadvantages
When it comes to understanding business finances, the ability to read different financial statements
becomes crucial. A cash flow statement is an important and essential part of keeping a record of the
business' financial liquidity. Business's liquidity matters because it often directly signals the
company's ability to pay off debts and to generate money.
In this guide, you'll learn to understand the definition of a cash flow statement with its benefits and
disadvantages. The guide will also look at the structure of a financial statement and the different
preparation methods you can use to calculate a company's cash flow.
What is a cash flow statement?
Cash flow statement is one core three financial reporting tools companies use. It is designed to
complement the balance sheet and the income statement. In most accounting systems around the
world, a cash flow statement is part of the mandatory reporting.
A cash flow statement is a an official record of cash and cash equivalents entering and leaving a
business entity. It focuses on showcasing the sources of money in the business as well as how it is
spent over a specific period.
It usually looks at the general accounting period, such as financial year, but cash flow statement can
be created over any specific period.
It is important to note that a cash flow statement doesn't include other money revenues, such as
depreciation or other such non–cash items. The statement is similar to income statement, as a
statement to

Cash Flows
1991
1990
1989
I. For each of the years on the Statement of Cash Flows: Major sources of cash in 1990 were
investing activities, Major Sources of cash in 1989 were financing activities 1. What were the firm 's
major sources of cash? Its Major sources of cash were provided by operating major uses of cash?
activities. ( Cash provided by investing activities in 1991 followed by operating activities. Major
uses of cash (operating activities also were sources of cash), while was much less than operating
activities ). Major uses of were financing activities. major uses of cash were investing activities.
cash were financing activities. 2. Was cash flow from operations greater than or CFO at $125.2M
was greater than Net Income (in this ... Show more content on Helpwriting.net ...
7. Were the working capital (current asset and current liability) accounts other than cash ad cash
equivalents primarily sources of cash, or users of cash? 8. What other major items affected cash
flows?
Current assets $258M were primarily sources of cash. Current assets $174.3M were primarily
sources of cash. Current assets ($61.2M) were primarily uses of cash. Current liabilities ($91.3M)
were primarily uses of cash. Current liabilities ($22.5M) were primarily uses of cash. Current
liabilities $41M were primarily sources of cash. Overall working capital accounts were sources of
cash in Overall working capital accounts were sources of cash in Overall working capital accounts
were uses of cash in 1991 at $169.5M. 1990 at $165.9M. 1989 at ($30.7M). Other items affecting
cash and not discussed in questions above were proceeds from sale of Class B common stock $5M
and purchase of treasury stock ($0.3M) in financing activities. Other items affecting cash and not
discussed in questions above were proceeds from sale of Class B common stock $8.7M and
purchase of treasury stock ($0.6M) in financing activities. Other items affecting cash and not
discussed in questions above were proceeds from sale of Class B common stock $17.5M and
purchase of treasury stock ($18.8M) in financing activities.
1991 II. What was the trend in:
1990

1989
9. Net

Using Discounted Cash Flow
Introduction
This assignment is to analyse and discuss the use of Discounted Cash Flow "DCF" to value Henkel
AG.
Discounted Cash Flow Valuation is based upon the notion that the value of an asset is the present
value of the expected cash flows on that asset, discounted at a rate that reflects the riskiness of those
cash flows. Specify whether the following statements about discounted cash flow valuation are true
or false, assuming that all variables are constant except for the variable discussed (Rubinstein,
2003). As described by Emhjellen and Alaouze (2003), the discounted net cash flow is one of the
most popular tool used for finance valuation.
The assignment will specifically discuss three key areas to DCF; Cost of Equity, ... Show more
content on Helpwriting.net ...
The usual method of selling equity in a company is to sell shares of stocks. Selling equity provides
the advantage that dividends will result on profitability. However, there 's huge advantage that
shareholders will expect a continuous return on their investment and if any stock fail it will be sold
off which in return will devaluate the company (Brigham and Ehrhardt, 2009).
Risk Free Rate
The risk free rate is defined as the return on a portfolio or security that has no covariance with the
market. This is a highly used method for estimating the cost of equity capital. To estimate the risk
free rate it's important to consider government default–risk free bonds since government bonds
come in many maturities. The risk free rate reflects three components; the rental rate, inflation, and
maturity risk or investment rate risk which are all economic factors that are found in the yield to
maturity for any given maturity length.
For Henkel AG risk free rate we will use a 10 year bond because it has the least risk. A longer bond
give the company a bigger picture of the future, for example 3 to 6 years are not long enough, on the
other hand 18 years are too long.
We will pick 3.38 because inflation needs time to be more established.
Calculation of Treasury Rate: (4.52 + 4.74) / 2 = 4.63

The above results is made by taking in account the rating of Hankel AG, while its rating A which is
rated

Overview of Cash Flow Management
Cash Flow Management
Poor cash management is the most frequent stumbling block that causes business failure (Anon.,
2013). Good cash management comes from knowing when, where, and how cash needs will occur.
Knowing the best sources for cash is vital to being prepared to meet needs as they arise. This
requires good relationships with bankers and creditors. Developing and maintaining cash flow
projections helps to understand how cash is generated and used in a business. Without understanding
the cash flow of a business, the business is doomed for failure.
Mr. Morello's projected cash flow for January 2012 to June 2012 shows negative cash flows for
January and May, with January $42,560 and May $1,190 in the negative. The majority of the
January expenses come from the needs of the contract. The May loss can be covered with profits
from February, March, and April, but January becomes a major problem. The projected budget
shows enough in profits to obtain a loan to cover the loss, overdraft, and still have some working
capital for expenses, such as fuel or maintenance for vehicles that is not in the projected budget. Mr.
Morello would need to obtain a loan for at least $50,000. Because accounts receivable can
sometimes be unpredictable, it would be wiser to consider the loan for $60,000 to ensure that the
business needs are met in a timely manner.
In efforts to reduce the interest expense from a loan, community banks and the Small Business
Administration offer lower interest

Cash Flow Statement
Statement of Cash Flows Paper
The Statement of Cash flows is a very useful financial statement that can benefit investors,
managers and even auditors. The statement of cash flows has not been around as long as the other
financial statements such as the balance sheet or income statement. It basically "illustrates the way
accounting evolves to meet the requirements of users of financial statements." (Marshall, 2003) The
statement of cash flows is designed to provide important information about the cash that a company
has received or has paid out during a certain time period. It provides a reason for the changes of cash
received and paid by a company by taking into ... Show more content on Helpwriting.net ...
Investors will be interested in this because they will be able to decide whether or not it is worth it to
buy shares of the company. Managers benefit from this statement because they are able to see
whether the company is making money and whether the company's performance is improving. They
can also use this to decide how they may improve the out put of the company, what changes need to
be made. Auditors are able to use the statement of cash flows to see exactly what a company did
with their money. They are able to dissect where the company received money from, where it
invested its money, and what operations the company took part in. So the statement of cash flows is
useful for many different people who are involved in a corporation.
Management of a company would probably be most interested in viewing the Operating Activities
section of the Statement of Cash Flows. This section pinpoints the exact inventories, liabilities,
depreciation and receivables of the company during a certain time period. So managers are able to
see what operations are occurring, what type of inventory is on hand and what the assets and
liabilities of the company are.
An auditor would be interested in the above section, but just as important would be the Investing
and Financing Activities sections. Auditors need to know where the company invested its money
and where it received its money in order to figure out whether

Discounted Cash Flow Analysis
Concepts of business valuation – Critical review of the Discounted Cash Flow (DCF) analysis and
its applicability in today's business world
SEMINAR PAPER
Table of contents page 1.
Introduction...............................................................................................................3 1.1 1.2 2. The
importance of business valuation ..................................................................3 Key indicators covered
in this seminar paper .......................................................4
The Discounted Cash Flow Analysis .......................................................................4 2.1 2.2 2.3 2.4
Foundational principles ... Show more content on Helpwriting.net ...
While there are many stakeholders who care about the financial situation of associated companies,
like suppliers, customers, or creditors, the main addressees of business valuation are strategic
investors who want to buy a significant stake in a company, as well as companies in the same
industry that consider merging with another firm in order to push forward vertical or horizontal
integration.1 And as a matter of fact, business valuation is by far not an easy task. There are
hundreds of possible factors adding to the equation when it comes to determining the value of a
business.2 Actually, just knowing the current value3 of an entire corporation, a factory or a certain
department within an existing enterprise, usually does for itself not help much. Rather it is actually
very uncommon that the current value of a business equals the price that's paid by investors.4 The
purchase price for a company is largely dependent on influences like the economic environment in
general (boom or crisis), the demand for one single enterprise or its products5, the situation of the
current shareholders6 etc. Other factors which can result in a difference between the value of a
company and the price paid are for example the qualification of the existing management, the extent
to which the company is seen

Financial Statements Of Cash Flow
The statement of cash flow is one of the financial statements that shareholders tend to evaluate to
ensure that all transactions are properly stated in each of the three activities mentioned above;
operating, investing, and financing. The statement of cash flows is also commonly overlooked by
both the balance sheets and income statements numbers.
The cash flow statement is important for the business as it brings valuable information that can help
evaluate a corporation. The statement will show if the business is low on money even if the financial
statements shows that is profitable. It will reflect if the owner withdrew to much cash from the
corporation. It will also reflect the principal payment of a loan and the correct amount used to
acquire equipment, property, and other assets that the income statement will not show. The absence
of this statement can hinder the operation of a business as the owner could easily fall in the negative
(loss) by not having eyes on the cash out flow exceeding the cash inflow.
Therefore, the adaptation of having a statement of cash flows becomes essential to any business or
organization. With the adaption of such a system personnel such as stakeholders become essential.
Stakeholders are a key role personnel when it comes to motivating the employees, acquiring
resources to assist on the final decision or final project, provide a valuable input, and ultimately
build trust with to increase consensus at the final decision making. The

Presentation Of The Statement Of Cash Flows
Presentation of the Statement of Cash Flows The statement of cash flows is a relatively new
statement. Focused on cash–basis accounting rather than accrual–basis, the purpose of this statement
is to describe the effects of a company's cash inflows and outflows. This paper will discuss the
current standards for the statement of cash flows, the history of the statement, and if the direct
method or indirect method is more advantageous for the users. Current Generally Accepted
Accounting Principles (GAAP) states, "[i]n reporting cash flows from operating activities, entities
are encouraged to report major classes of gross cash receipts and gross cash payments and their
arithmetic sum–the net cash flow from operating activities (the direct method)" (ASC–230–10–45–
25). In addition, per ASC 230–10–45–30, if a company chooses to report the change in cash flow
from operating activities using the direct method, it must also include a separate schedule containing
the indirect method, which is a reconciliation of net income to cash flows from operating activities.
In choosing to write the standards this way, the Financial Accounting Standards Board (FASB)
considered both methods and recognized the advantages of each. However, the board noted that
neither method provided enough benefit on its own to justify the required use of one or the other.
The board believes that the more comprehensive approach would be to use the direct method in the
operating section of the statement of

Preschool Cash Flow Budget
What we have–In the cash flow budget, we start with $100,000 at the beginning of the month each
month. Our beginning revenue and income came from tuition and fees. The total cash payments
from January through December was $100,000. In May and November our biggest income came in
from tuition and fees, plus event income of $50,000, and from foundation support of $400,000. For
the cash flow budget to stabilize each month over the annual budget year, we need to at least start
off with $180,000 for the first four months, from about January to April. This is so that cash
spending will remain steady for the remainder of the year. The idea of $180,000 during the first 4
months will hopefully lessen any cash flow and spending short shortfalls over the year, while
adhering to the board of director's goal of at least $80,000 at the end of each month.
As the budget stands right now, we are going to have a $100,000 deficit at the end of the year. This
doesn't leave much money for the safety margin or starting up the preschool program ... Show more
content on Helpwriting.net ...
This way we are keeping any eye on or salary and wage expenses. A suggestion for increasing and
stabilizing the preschool program budget could be to move the foundation support to the earlier part
of the year. For example, the foundation supports could be in January and July instead of May and
November, that way the biggest income happens at the beginning of the year and we could evaluate
making any needed changes to the budget to avoid a monthly cash shortfall, cutting necessary
expenses, and having to borrow money that the organization cannot pay back the next year. Another
suggestion could be to request the foundation support for the year in one lump sum payment instead
of receiving it in two payments. That way the organization would have the money upfront instead
waiting to apply the fund in that future

Cash Flow Hedging
I (briefly) worked for a notorious figure in the FX industry whose favorite dictum was: "That which
gets measured gets made." Trite but true; well–thought–out performance metrics are critical in
optimizing results and there is plenty of anecdotal evidence showing how various failures in the
workplace can be traced back to poorly constructed or out–of–date practices.
Shareholders certainly have common ways of measuring the performance of publicly–owned
companies: quarterly earnings, revenues, and expenses among others. Given the international nature
of most businesses, foreign exchange can obviously have a significant impact on results, and yet
these FX impacts are often poorly understood, both inside and outside the company.
Many ... Show more content on Helpwriting.net ...
For this reason, the gains or losses from the cash flow hedges are more likely to be allocated to the
various businesses and regions within the company, and therefore the need to understand the
impacts goes well beyond the Treasury team. Since these hedging impacts often show up on the
revenue and expense lines of the income statement, they become important for investors to
understand as well.
When done well, the financial, strategic, and operational benefits of hedging can go beyond merely
avoiding financial distress by opening up options to preserve and create value. But done poorly, FX
hedging can overwhelm the logic behind it and can actually destroy more value than was originally
at risk. Perhaps individual business units hedge opposite sides of the same risk, or managers expend
too much effort hedging risks that are immaterial to a company's health. Managers can also
underestimate the full costs of hedging or overlook natural hedges, instead applying costly financial
ones. Nevertheless, a few simple pointers can help avoid problems and make hedging strategies
more effective.
Good information leads to better decisions
A corporation's value is based on the size and stability of future cash flows. Reducing earnings
volatility

Understanding Cash Flows
Understanding Cash Flows and Capital–Budgeting DecisionsIndiana Wesleyan University
FIN–310–01A
Dr. Sam OjoOctober 19, 2014
Understanding Cash Flows and Capital–Budgeting Decisions
When evaluating cash flows for determining whether or not to pursue constructing a building to
manufacture cupcakes there are several things to consider. The most important would be looking at a
Grammy's incremental after tax cash flow. Then one needs to determine the projects initial outlay,
the differential cash flows over the project's life, and the terminal cash flow. Also what needs to be
looked at is what is the net present value and its internal rate of return.
When making the capital–budgeting decision for constructing a building to manufacture ... Show
more content on Helpwriting.net ...
Why or Why Not?
Yes it should be accepted. The construction of the building should be accepted. This is because the
net present value is greater than one and the NPV is a positive number. This means that the
construction project creates value and wealth. Also the internal rate of return is greater than the
required rate of return. This means the project will be a benefit to Grammy's company.
Genesis 47:18–19 (KJV), states, "When that year was ended, they came unto him the second year,
and said unto him, We will not hide it from my lord, how that our money is spent; my lord also hath
our herds of cattle; there is not ought left in the sight of my lord, but our bodies, and our lands:
Wherefore shall we die before thine eyes, both we and our land? Buy us and our land for bread, and
we and our land will be servants unto Pharaoh: and give us seed, that we may live, and not die, that
the land be not desolate." The people in the passage of scripture were explaining to their master
what they had to offer him. The "cash flow" was completely gone for the previous year but they had

Cash Flow
Chapter 5
Statement of Cash Flows
Learning Objectives
1. Identify the purposes of the statement of cash flows 2. Classify activities affecting cash as
operating, investing, or financing activities 3. Compute and interpret cash flows from financing
activities 4. Compute and interpret cash flows from investing activities 5. Use the direct method to
calculate cash flows from operations 6. Use the indirect method to explain the difference between
net income and net cash provided by (used for) operating activities 7. Understand why we add
depreciation to net income when using the indirect method for computing cash flow from operating
activities 8. Show how the balance sheet equation provides ... Show more content on
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a. True b. False
L.O.: 3 Type: Easy Solution: b
20. The purchase of treasury stock would be considered a financing activity. a. True b. False
L.O.: 3 Type: Easy Solution: a
21. Payment of dividends is a financing activity. a. True b. False
L.O.: 3 Type: Moderate Solution: a
22. Receipt of loan repayments is a financing activity. a. True b. False
L.O.: 3 Type: Moderate Solution: b
23. The indirect method of determining cash from operations is most often used as this method
produces larger positive cash flows. a. True b. False
24. The Financial Accounting Standards Board (FASB) prefers the indirect method of determining

cash flows from operations. a. True b. False
25. Net income is always used in determining a company 's cash flow from operations. a. True b.
False
26. Wages and salaries expense plus the increase in wages and salaries payable equals cash paid for
wages and salaries. a. True b. False
L.O.: 4 Type: Difficult Solution: b
27. Both the direct and indirect methods yield the same cash flow from operations. a. True b. False
L.O.: 4 Type: Easy Solution: a
28. The indirect

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