The document discusses the importance of generating cash for a business. It states that a firm's financial health and success is determined by its cash flow, not just profits. It uses an example company, No-Cash Corporation, to demonstrate how a company can be highly profitable but still experience cash flow problems that could potentially cause bankruptcy. The document emphasizes that the cash flow statement is needed in addition to the income statement to fully understand a company's financial position.

1. IMPORTANCE OF GENERATING CASH presentation by Ronald A. Sereika, CCE, CEW August 21, 2007

5. APRIL 12, 2007 FIRM’S FINANCIAL HEALTH DETERMINED BY CASH FLOW PROFIT TRIPLED Y/Y No-Cash Corporation Income Statement for year 1 and 2 . 30,000 10,000 INCOME 70,000 40,000 NET EXPENSE 100,000 50,000 NET SALES YEAR 2 YEAR 1 FINANCIALS

8. APRIL 12, 2007 FIRM’S FINANCIAL HEALTH DETERMINED BY CASH FLOW No-Cash Corporation Balance Sheet at December 31, Year 2 . $35,000 $57,000 $22,000 Total Liabilities and Equity $30,000 $45,000 $15,000 Equity +$10,000 $10,000 0 Notes Payable to Banks -5,000 (3) $2,000 $7,000 Accounts Payable +35,000 $57,000 $22,000 Total Assets $25,000 $30,000 $2,000 YEAR 2 +15,000 (2) $10,000 Inventories +$20,000 (1) $10,000 Accounts Receivables 0 $2,000 Cash CHANGE YEAR 1 FINANCIALS

9. APRIL 12, 2007 FIRM’S FINANCIAL HEALTH DETERMINED BY CASH FLOW No-Cash Corporation Indirect Method of Determining Cash Flow - Year 2 Would you lend this firm $10,000? ($10,000) Cash Generated ($ 5,000) (Subtract) Decrease in A/P ($15,000) (Subtract) Increase in Inventory ($20,000) (Subtract) increase of A/R $30,000 Net Income YEAR 2 FINANCIALS

10. APRIL 12, 2007 FIRM’S FINANCIAL HEALTH DETERMINED BY CASH FLOW Reminder of the Impact Balance Sheet Items on Cash Decrease in an equity account Increase in a equity account Decrease in a liability account Increase in a liability account Increase in an asset account Decrease in an asset account OUTFLOWS INFLOWS

19. Worksheet for Preparing Statement of Cash Flows * FINANCING $ 4,084 $16,975 $21,059 LONG TERM BORROW OPERATING $ 208 $ 635 $ 843 DEFERRED INCOME TAXES OPERATING $ 356 $ 5,313 $ 5,669 ACCRUED LIABILITIES FINANCING $ 368 $ 1,516 $ 1,884 CURRENT MATURITIES LTD FINANCING ($ 398) $ 6,012 $ 5,614 NOTES PAYABLE - BANKS OPERATING $ 6,703 $ 7,591 $14,294 ACCOUNTS PAYABLE LIABILITIES & STOCKHOLDERS EQUITY INVESTING ($ 295) $ 668 $ 373 OTHER ASSETS OPERATING ( $ 3,998) ($7,530) (11,528) ACCUMULATED DEP INVESTING $14,100 $26,507 $40,607 PROP PLANT EQUIP OPERATING ($ 247) $ 759 $ 512 PREPAID EXPENSES OPERATING $10,272 $36,769 $47,042 INVENTORIES OPERATING $ 610 $ 8,350 $ 8,960 ACCOUNTS REC CASH ($ 2,732) $ 8,004 $ 5,272 MARKET SECURITIES CASH $ 1,679 $ 2,382 $ 4,061 CASH ASSETS CATEGORY CHANGE IN 1999-1998 1998 1999

20. Using the Indirect Method for Cash Flows ($ 1,053) Increase (Decrease) in Cash and Marketable Securities $ 256 ($ 30) $ 5,600 ($ 1,516) ($ 1,582) $ 2,728 Sale of Common Stock Increase (Decrease) in Short Term Borrow. (Including Current Maturities of long term debt) Additions to long terms borrowing Reductions to long term borrowing Dividends Paid Net Cash provided (used) by financing activities Cash Flow from Financing Activities ($14,100) $295 ($13, 805) Additions to Property, Plant & Equip Other Investing Activities Net Cash provided (used) by investing activities Cash Flows from Investing Activities $9,394 $3,998 $208 ($610) ($10,272) $247 $6,703 $356 $10,024 Net Income Non Cash Operating Items +Depreciation +Increase in Deferred Tax Liability Cash provided (used) by current asset, liabilities. -Increase in accounts received -Increase in Inventory +Decrease in prepaid expenses +Increase in Accounts Payable +Increase in Accrued Liabilities Net Cash Flow from Operating Activities Cash Flows from Operating Activities

21. Worksheet for Preparing Statement of Cash Flows ** * $ 7,812 CHANGES IN RETAINED EARNINGS FINANCING ($ 1,582) DIVIDENDS PAID OPERATING $ 9,394 NET INCOME (OPERATING) $ 4, 084 NET CHANGE IN LONG TERM DEBT FINANCING ($ 1,516) REDUCTIONS OF LONG TERM BORROWINGS FINANCING $ 5,600 ADDITIONS TO LONG TERM BORROWINGS ** $7,812 $32,363 $40,175 RETAINED EARNINGS FINANCING $ 47 $ 910 $ 957 ADDITIONAL PAID IN FINANCING $ 209 $ 4,594 $ 4,803 COMMON STOCK STOCKHOLDERS EQUITY CATEGORY CHANGE IN 1998-1999 1999 1998