Statement of Cash Flows

• Format• Indirect Method• Free cash flow

Business Activities

CASH FLOW FROM:

OPERATIONS INVESTING FINANCING

Statement of Cash Flows

• For the period ending …

Beginning cash $ 10

+ Cash flow from operations (not same as Net Income)

90

- Cash flow from investments

20

+/- Cash flow from financing

-50

= Ending cash 30

Indirect method: Statement of Cash Flows

• Cash flow from operating activities– Start with net income– Adjustments

• Items on the income statement that do not represent a cash receipt or payment

– Depreciation

• Gains or losses on sale of assets– Included in cash flow from investments

Indirect method: Statement of Cash Flows

• Cash flow from operating activities– Adjustments

• Changes in current asset and liability accounts

– Increase in current assets = – Decrease in current assets =– Increase in current liabilities = – Decrease in current liabilities =

Indirect method: Statement of Cash Flows

• Cash flow from investing activities– Changes in long-term assets

• Purchase of long-term assets is shown separately from sale of long-term assets

• Includes gain/loss on sale

– Plant assets• Analyze change in asset and accumulated

depreciation– See Problem 13-5A

Indirect method: Statement of Cash Flows

• Cash flow from financing activities– Changes in long-term liabilities and

owners equity • Bonds: issue and repayment on bonds• Common stock: issue and repurchase of

common stock• Payment of dividends

Free Cash Flow

• Cash flow from operations – dividends – capital expenditures