Statement of cash flows and net cash
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Discussion Questions
1. Identify the three sections of the statement of cash flows. What sign (positive or negative) for each section would you expect for a financially strong firm? Expand on response
2. Define the statement of cash flows. What is its purpose? Expand on response
3. Why is the net cash flow from operating activities arguably the most informative # in the financial statements? Expand on response
Textbooks
Introduction to Financial Accounting, 11/E, Charles T. Horngren, Stanford University, Gary L. Sundem, University of Washington, John A. Elliott, Baruch College, The City University of New York, Donna Philbrick, Portland State University,ISBN-10: 0133489361 | ISBN-13: 9780133489361 ©2014 • Prentice Hall • Cloth, 648 pp
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Solution Summary
The expert identifies the three sections of the statement of cash flows. What sign (positive or negative) for each section would you expect for a financially strong firm. The statement of cash flows and the purpose is given. The net cash flow from operating activities arguably the most informative in the financial statements is computed.
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Discussion Questions
1. Identify the three sections of the statement of cash flows. What sign (positive or negative) for each section would you expect for a financially strong firm? Expand on response.
The three sections of the statement of cash flows are:
a. Operating activities section - shows the cash inflows and outflows from the company's main operations. Examples: Cash received from customers, cash paid to suppliers, cash paid for wages, taxes etc.
b. Investing activities section - shows the cash inflows and outflows from company's investing activities relating to assets. Examples: Cash paid for purchase of land, equipment, cash received from sale of asset etc.
c. Financing activities section - shows the cash inflows and outflows from company's financing activities. Examples: Cash inflow from issue of stock, raising of funds via bonds, repayment of long-term debt, payment of cash dividends etc.
For a financially strong firm, I expect the following signs for each section:
a. Operating activities section - POSITIVE SIGN.
A healthy firm should have a positive cash flow from operating activities. ...
Education
- MPhil, Madurai Kamaraj University
- MCom, Annamalai University
- IATA, International Air Transport Association
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