Statement of Cash Flows

STATEMENT OF
CASH FLOWS
The Power of Statement of Cash
Flows
• The cash from operating activities is compared
to the company's net income. If the cash from
operating activities is consistently greater than
the net income, the company's net income or
earnings are said to be of a "high quality". If the
cash from operating activities is less than net
income, a red flag is raised as to why the
reported net income is not turning into cash.
The Power of Statement of Cash
Flows
• Some investors believe that "cash is king". The
cash flow statement identifies the cash that is
flowing in and out of the company. If a company
is consistently generating more cash than it is
using, the company will be able to increase its
dividend, buy back some of its stock, reduce
debt, or acquire another company.
Statement of Cash Flows
•A financial statement that shows how
changes in balance sheet accounts and
income affect cash and cash equivalents,
and breaks the analysis down to
operating, investing, and financing
activities.
•The cash flow statement reports the cash
generated and used during the time
interval specified in its heading.
•For example, the heading may state "For
the Three Months Ended December 31,
2016" or "The Fiscal Year Ended
September 30, 2016".
•When an asset (other than cash)
increases, the Cash account decreases.
•When an asset (other than cash)
decreases, the Cash account increases.
•When a liability increases, the Cash
account increases.
•When a liability decreases, the Cash
account decreases.
•When owner's equity increases, the Cash
account increases.
•When owner's equity decreases, the Cash
account decreases.
Presentation of Statement of Cash
flows
Operating activities
Converts the items reported on the income
statement from the accrual basis of
accounting to cash basis.
flows
Investing Activities
Reports the purchase and sale of long-term
investments and property, plant and
equipment.
flows
Financing Activities
Reports the issuance and repurchase of the
company’s own bonds and stock and the
payment of dividends.
Methods of Computing cash from
operating activities
•Direct method
It presents the specific cash flows
associated with items that affect cash
flow.
The advantage of direct method over the
indirect method is that it reveals operating
cash receipts and payments.
•Direct method
It typically includes:
Cash collected from customers
Cash paid to employees
Cash paid to suppliers
Interest paid
Income taxes paid
LOWRY LOCOMOTION
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2016
Cash flows from operating activities

Cash receipts from customers 45,800,000
Cash paid to suppliers - 29,800,000.0
Cash paid to employees - 11,200,000
Cash generated from operations 4,800,000
Interest paid - 310,000

Income taxes paid - 1,700,000
Net cash from operating activities 2,790,000
Cash flows from investing activities

Purchase of property, plant, and equipment - 580,000
Proceeds from sale of equipment 110,000
Net cash used in investing activities - 470,000
Cash flows from financing activities

Proceeds from issuance of common stock 1,000,000
Proceeds from issuance of long-term debt 500,000
Principal payments under capital lease obligation - 10,000
Dividends paid - 450,000
Net cash used in financing activities 1,040,000
Net increase in cash and cash equivalents 3,360,000

Cash and cash equivalents, January 1 1,640,000
Cash and cash equivalents, December 31 5,000,000
•Indirect method
The indirect method is very popular,
because the information required for it is
relatively easy to assemble.
LOWRY LOCOMOTION
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2016
Cash flows from operating activities

Net income 2,665,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 125,000
Provision for losses on accounts receivable 15,000
Gain on sale of equipment - 155,000
Increase in interest and income taxes payable 32,000
Increase in deferred taxes 90,000
Increase in other liabilities 18,000
Total adjustments 125,000
Net cash provided by operating activities 2,790,000
Cash flows from investing activities
Purchase of property, plant, and equipment - 580,000
Proceeds from sale of equipment 110,000
Net cash used in investing activities - 470,000
Cash flows from financing activities

Proceeds from issuance of common stock 1,000,000
Proceeds from issuance of long-term debt 500,000
Principal payments under capital lease obligation - 10,000
Dividends paid - 450,000
Net cash used in financing activities 1,040,000
Net increase in cash and cash equivalents 3,360,000

Cash and cash equivalents, January 1 1,640,000
Cash and cash equivalents, December 31 5,000,000

Statement of Cash Flows

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Statement of Cash Flows

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STATEMENT OF

Cash flows from operating activities

Interest paid - 310,000

Cash flows from investing activities

Cash flows from financing activities

Net increase in cash and cash equivalents 3,360,000

Cash flows from operating activities

Cash flows from financing activities

Net increase in cash and cash equivalents 3,360,000

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