The primary operating cash outflows are cash payments for merchandise, operating expenses, interest, and income tax paymentscash flows from transactions that affect net income.cash received and paid in the daily operations of the business, including:Cash received from customersCash paid to suppliers
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cash flows from transactions that affect investments in the noncurrent assets of the company.cash received and paid as a result of the sale and purchase of investmentsinvestment in yourself – purchase and sale of fixed assestsinvestment in others- Making of a loan to another company, debt from another company
cash flows from transactions that affect the equity and debt of the companycash received and paid as a result of the activities to obtain and repay funds used to finance the operations of a companyequity financing: -issuing shares of stock-retiring shares of stock -purchasing/ selling shares of treasury stock-paying cash dividends on stockdebt financing: – borrowing cash-repaying principal on a loan
The following transactions are reported in the operating activities section of the statement of cash flows: 1.Interest paid on debt2. Interest received on investments3. Dividends received on investments
reports the operating cash flows by beginning with net income and adjusting it for revenues and expenses that do not involve the receipt or payment of cash
Cash flow per share should not be reported on a company”s financial statements for the following reasons:-Users may misinterpret cash flow per share as the per-share amount available for dividends.-Users may misinterpret cash flow per share as equivalent to earnings per share
+depreciation+ amortizationExpenses that do not affect cash are added. Such expenses decrease net income, but do not involve cash payments and, thus, are added to net income. Examples include depreciation of fixed assets and amortization of intangible assets
+losses of sales- gains of salesLosses and gains on disposal of assets are added or deducted. The disposal (sale) of assets is an investing activity, rather than an operating activity. Losses on disposal of assets are added back to net income. Gains on disposal of assets are deducted from net income
Changes in current operating assets and liabilities are added or deducted as follows:- Increases in noncash current operating assets+ Decreases in noncash current operating assets+ Increases in current operating liabilities – Decreases in current operating liabilities
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measures the operating cash flow available for a company to use after purchasing the property, plant, and equipment necessary to maintain current productive capacity.Cash flow from operating activities Less: Investments in fixed assets to maintain current production == Free cash flowA company that has free cash flow is able to fund internal growth, retire debt, pay dividends, and enjoy financial flexibility
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