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Cash Flows Statement: Purpose and Structure

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1. Snow Cleaners, Inc., had net income of $494,592 for its fiscal year ended November 30, 2009. During the year, the company had outstanding 64,000 shares of 12 percent $40 par value preferred stock, and 37,280 shares of common stock. Calculate the earnings per share of common stock for the 2009 fiscal year.

2. What is the purpose of the Statement of Cash Flows? Explain its structure and how you would use the cash flow information presented in the statement to assess an organization.

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Earnings Per Share and Statement of Cash Flow Purpose

1. 64,000 shares preferred x $40 = $$2,560,000

$2,560,000 x 12% = $307,200 preferred dividends

$307,200 / 64,000 shares = $4.80 dividend per share preferred stock

Net income $494,592 - $307,200 = $187,392 dividends available for common stockholders
$187,392 / $37280 = $5.026 dividend per share common stock.

2. The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period. To be specific, however, the statement of cash flows serves several purposes. First of all it predicts future cash flows. Past cash receipts and ...

Solution Summary

This solution is comprised of a detailed explanation of the purpose and structure of the Statement of Cash Flows and how to calculate the earnings per share of preferred and common stock. Also included is an explanation of three ratio analysis using information from the statement of cash flows: current cash debt coverage ratio, cash debt coverage ratio, and free cash flow analysis.

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