ACCTNG 2400 1st Edition Lecture 23 Outline of Last Lecture I. Chapter 11 – stockholders equityII. Stock authorization, issuance, and repurchaseIII. Dividends on common stockIV. Prefered stock dividendsV. EPSVI. ROEVII. P/EOutline of Current LectureVIII. Chapter 12IX. Statement of cash flowsX. Relationship between cash flow categories and other financial statementsXI. Direct and indirect reporting XII. Evaluating cash flow Current LectureStatement of cash flows- Reports the entititys cash flows (cash recipients and cash payments) durng the period- Shows where cash came from (sources) and how cash was spent (uses)- A company needs both net income and strong cash flow to succeedThese 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.Operations – cash recived and paid for day-to-day activities with customers, suppliers and empolyees. Investing – cash paid and received from buying and selling long-term assetsFinancing – cash received and paid for exchanges with lenders and stockholdersRelationship between cash flow categories and other financial statementsIndirect method- Provides summary information- Reconciles cash flows to net income (GAAP requirement)- Adjusts net income for non-cash impacts and changes to current assets and liabilitiiesStart with accrual basis net income and adjust it for:1. Items that ARE included in net income but do NOT involve cash, and2. Items that are NOT included in net income but DO involve cashDirect method- Provides more detailed information- Identifies cash inflow and cash outflow relationships- Prepared by adjusting accrual basis to cash basisConvert each revenue and expense on the income statement to a cash flowEvaluating Cash FlowsOperating- Must be positive over time for a company to be successsful- Upward trend indicates growth and efficient operations- Look at the relationship between operating cash flows and net incomeInvesting- Healthy companies tend to show negative flows in this section- Be cautious about a positive total cash flow in this sectionFinancing- Cannot evaluate by simply determining whether they are positive or negative on an overall basis- Need to consider detailed line items with this section to assess the companys overall financing
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