Slide 1Slide 2Business Activities and Cash FlowsSlide 4Slide 5Slide 6Slide 7Slide 8Relationship to Other Financial StatementsRelationship to Other Financial StatementsSlide 11Cash Flows from Operating Activities - Indirect MethodRelationships to the Balance Sheet and the Income StatementStatement of Cash Flows Indirect Method ExampleStatement of Cash Flows Indirect Method ExampleStatement of Cash Flows Indirect Method ExampleSlide 17Indirect Reporting of Operating Cash FlowsSlide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Evaluating Operating Cash FlowsEvaluating Investing Cash FlowsEvaluating Financing Cash FlowsOverall Patterns of Cash FlowsSlide 37Slide 38Slide 39Slide 40Slide 41Slide 42Slide 43Slide 44Slide 45Slide 46Slide 47Slide 48Slide 49Slide 50Slide 51Slide 52Slide 53Slide 54Slide 55Slide 56Slide 57End of Chapter 12McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 12Statement of Cash Flows**Responsible for Indirect Method only PowerPoint Authors:Brandy MackintoshLindsay HeiserEdited by Muriel Anderson, CPA12-2Identify cash flows arisingfrom operating, investing,and financing activities.12-3OperationsCash received and paidfor day-to-day activitieswith customers, suppliers,and employees.InvestingCash paid and receivedfrom buying and sellinglong-term assets. FinancingCash received and paidfor exchanges withlenders and stockholders.Business Activities and Cash FlowsThe Statement of Cash Flows focuses attention on:12-4Classifying Cash FlowsUNDER ARMOUR, INC.Statement of Cash FlowsFor the Year Ended December 31, 2010(in millions)Net cash provided (used) by operating activitiesNet cash provided (used) by investing activitiesNet cash provided (used) by financing activitiesNet Change in Cash and Cash EquivalentsCash and cash equivalents, beginning of yearCash and cash equivalents, end of year$ 37 (41) 7 3 187$ 19012-5Cash inflows and outflows that directly relate to revenues and expenses reported on the Income Statement.Operating Activities12-6Investing ActivitiesUnder Armour’s 2010 Investing Activities12-7Financing ActivitiesUnder Armour’s 2010 Financing Activities12-8Relationships Between Classified Balance Sheet and Statement of Cash Flow (SCF) CategoriesSCF Categories Classified Balance Sheet CategoriesOperating Current assets Current liabilitiesInvesting Noncurrent assetsFinancing Noncurrent liabilitiesStockholders’ equity12-9Relationship to Other Financial StatementsInformation needed to prepare a Statement of Cash Flows:Comparative Balance Sheets.Income Statement.Additional details concerningselected accounts.12-10Relationship to Other Financial StatementsRecall that the basic Balance Sheet equation is:We can recast the equation as follows:The following equation is true:From this basic Balance Sheet equation, wedevelop our model to solve for the change in cash:12-11Report cash flows from operating activities, usingthe indirect method.12-12Cash Flows from Operating Activities - Indirect MethodNet IncomeCash Flows from Operating Activities - Indirect MethodChanges in Current Assets and Current Liabilities.+ Losses and - Gains+ Noncash expenses such as Depreciation and Amortization.The indirect method adjusts Net Incomeby analyzing noncash items.12-13Use this table when adjusting Net Income to operating cash flows using the indirect method.Current Assets Current LiabilitiesSubtract from Add tonet income. net income.Add to Subtract fromnet income. net income.IncreaseDecreaseRelationships to the Balance Sheet and the Income StatementChange in accountbalances during the year12-14Use the following financial statements for Under Armour, Inc. and prepare the Statement of Cash Flows for the year ended December 31, 2010. Statement of Cash FlowsIndirect Method Example12-15Statement of Cash FlowsIndirect Method Example12-16Statement of Cash FlowsIndirect Method Example12-17The Statement of Cash Flows using the indirect method will begin with Under Armor, Inc.’s Net Income from the Income Statement.Statement of Cash FlowsIndirect Method Example12-18Indirect Reportingof Operating Cash FlowsWhen using the indirect method, start with accrual basis Net Income and adjust it for:1. items that are included in Net Income but do not involve cash, and 2. items that are not included in Net Income but do involve cash.12-19Next, adjust for the non-cash items includedin Net Income.For Under Armour, the only non-cash adjustmentis for Depreciation Expense.12-20Accumulated Depreciation increased by $17, from $70 in the 2009 Balance Sheet to $87 in the 2010 Balance sheet. The same $17 is shown as Depreciation Expense in the 2010 Income Statement. To complete the Cash Flows from Operating Activities section, we must examine comparative Balance Sheets to determine the changes in current assets and current liabilities from the beginning of the period to the end of the period.12-21Current Assets Current LiabilitiesSubtract from Add tonet income. net income.Add to Subtract fromnet income. net income.IncreaseDecreaseThese five items were shown earlier in the current portions of Under Armour’s comparative Balance Sheets for 2009 and 201012-22Report cash flows from investing activities.12-23Reporting Cash Flows from Investing ActivitiesWe will need this additional data to preparethe investing portion of the statement.1. No disposals of Equipment occurred2. Equipment costing $30 million and Intangibles costing $11 million were purchased with Cash.12-24Under Armour, Inc., has two investing activities on the Statement of Cash Flows that required the use of Cash:1. Purchase of Equipment, and2. Purchase of Intangibles and Other Assets.Reporting Cash Flows from Investing Activities12-25Report cash flows from financing activities.12-26Reporting Cash Flows from Financing ActivitiesWe will need this additional data to preparethe financing portion of the statement.1. No Dividends were declared or paid.2. Long-term Debt of $5 million was paid.3. $9 million in new long-term loans were issued.4. Shares of Stock were issued for $3 million.12-27Reporting Cash Flows from Financing ActivitiesLong-term Debt increased because of $9 innew loans during the year. The long-term Debtincrease is a Cash inflow.12-28Reporting Cash Flows from Financing ActivitiesPayments on Long-term Debt resulted in a Cash outflow of $5. The net effect of these two Long-term Debt transactions increased Long-term