HB 311 1st Edition Lecture 3 Cash Flows Statement Statement showing effects on cash from a business s three activities o Operating running business on day to day basis such as buying inventory producing and selling product paying expenses and taxes collecting credit sales o Investing When firm buys or sells things to do business including purchasing fixed assets examine change in GROSS fixed assets not net o Financing Firm borrows money pays off loans sells stock pays dividends Cash is defined as Cash and Cash Equivalents Cash Equivalents Treasury Bills Money Market Accounts Any transfers from cash to cash equivalents is not considered to be a receipt or disbursement Income doesn t represent cash in firm s pocket Information on movement of cash Constructed from balance sheet and income statement Importance of SCF Organizations ability to generate positive cash flows Shows how much cash firm has to pay bills Can see if company is risky or if cash is generated from operations Sources of Cash Flows Operating Cash Inflow from Sale of Goods and Interest Cash Outflow from payment of salaries and payment to suppliers Investing Cash Inflow from Sale of Property Cash Outflow from cash to purchase property Financing Cash Inflow from sale of stock issuance of debt Cash outflow from cash to repay debt or paid out dividends 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 Cash Flow Rules When assets increase it s a use of cash When assets increase it s a source of cash When liabilities increase it s a source of cash When liabilities decrease it s a use of cash
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