2 - 1 Cash Flows by area Most numbers derived from changes in Balance Sheet Accounts Focuses on Sources and Uses of Funds Period of Time Relatively Recent Statement, late 1980’s Statement of Cash Flows

2 - 2 Operating Activities: Best Indicator of Business Health Current Accounts Net Income Depreciation Day to day, core business activities Investing Activities Long Term, Strategic Activities Fixed Assets (Gross PP&E) M&A Activity Organization of Cash Flow Statement

2 - 3 Financing Activities Acquisition of funds from or payment of funds to claimants (owners or creditors) Notes Payable and Lower RHS Dividend Paid or Received Financing Activities General Key: Increases in Assets are uses of funds/outflows “remember one and get three for free” Organization of Cash Flow Statement

Cash7,2829,000 Short-term inv.048,600 AR632,160351,200 Inventories1,287,360715,200 Total CA1,926,8021,124,000 Gross FA1,202,950491,000 Less: Depr. 263,160146,200 Net FA939,790344,800 Total assets2,866,5921,468,800 Balance Sheets: Assets

,733,760 Liabilities and Equity Accts payable524,160145,600 Notes payable720,000200,000 Accruals 489, ,000 Total CL481,600 Long-term debt1,000,000323,432 Common stock460,000 Retained earnings (327,168) 203,768 Total equity 132, ,768 Total L&E2,866,5921,468,800

2 - 6 Statement of Cash Flows: 1998 OPERATING ACTIVITIES Net Income(519,936) Adjustments: Depreciation116,960 Change in AR(280,960) Change in inventories(572,160) Change in AP378,560 Change in accruals353,600 Net cash provided by ops. (523,936)

2 - 7 L-T INVESTING ACTIVITIES Investments in fixed assets(711,950) FINANCING ACTIVITIES Change in s-t investments48,600 Change in notes payable520,000 Change in long-term debt676,568 Payment of cash dividends(11,000) Net cash from financing1,234,168 Sum: net change in cash(1,718) Plus: cash at beginning of year9,000 Cash at end of year7,282

2 - 8 What were the major sources and uses of cash? What % of inflows and outflows came from the three areas? What lifecycle stage is the firm in? Is cash being created internally or externally? Is the pattern typical (and sustainable), or not? Analysis of Statement of Cash Flows

2 - 9 Net cash from operations = -$523,936, mainly because of negative net income. The firm borrowed $1,185,568 and sold $48,600 in short-term investments to meet its cash requirements. Even after borrowing, the cash account fell by $1,718. What can you conclude about the company’s financial condition from its statement of cash flows?

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