COB 242 1st Edition Lecture 5Outline of Current Lecture 1. Statement of Cash Flowsa. Free cash flowsb. Earnings qualityc. Example StatementCurrent Lecture1. Statement of Cash Flowsa. Free cash flows- measures a company’s ability to fund its capital expenditures and dividends from its net cash provided by operating activitiesi. Net cash provided by operating activities –capital expenditures – dividends = free cash flow b. Earnings qualityi. Higher quality when:1. Earnings are not unduly influenced by inflation2. Earnings are computed using conservative accounting principles and estimates3. Earnings are correlated with net cash provided by operating activities Example Statement of Cash Flows Operating ActivitiesNet Income 140AdjustmentsDepreciation 103Accounts receivable 17inventory (49)accounts payable 44accrued liability 3income tax payable 4gain on sale of store (3) 119Net Cash provided by Operating Activities $259Investing ActivitiesAdditions to Property, plant, and equipment (138)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Proceeds from sale of store 8Net Cash used in Investing Activities $130Financing ActivitiesRetirement of bonds payable (41)Issuance of common stock 2Cash dividends paid (28)Net Cash used in financing activities $67Net increase in cash and cash equivalents 62Cash and cash equivalents beginning balance 29Cash and cash equivalents ending balance
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