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In: Accounting

1. What does it mean when investing activities are reported on the Statement of Cash Flows?...

1. What does it mean when investing activities are reported on the Statement of Cash Flows? Provide three examples of investing activities.
2. What does it mean when financing activities that are reported on the Statement of Cash Flows? Provide three examples.
3. Both the Direct and Indirect Methods are used to prepare the Cash Flow Statement. What is the difference between these two methods?
4. How do you determine a company’s cash flow from their operating activities using the Indirect Method?
5. What are the four (4) building blocks of financial statement analysis? Explain the purpose of each one.
6. What is the purpose of each of the following ratios and how are they computed?

a. Working capital
b. Acid-test ratio
c. Current ratio

7. What do these ratios tell us about a company Who are the intended users of these ratios?
8. Which type of analysis...

a. Measures key relationships between financial statement items?
b. Compares a company's financial condition across time?
c. Compares a company's financial condition to a base amount?

9. What is the difference between comparative financial statements and common size comparative financial statements?
10. What is the criteria for cash flows to be classified as a cash equivalent?

Please answer all of the questions, if you can not answer all of the questions do not reply.

Solutions

Expert Solution

1. cash flow from investing activities reports the change in company's cash position resulting from any gains or losses from investments & changes resulting from amount spent on investments in capital assets.

eg. investment in subsidiary , purchase of plant & machinery , collection of loans proceeds.

2. cash flow from financing activities reports external activities that allows for firm to raise capital and repaying investors.

eg. proceeds from issue of long term debt, dividend paid, purchase of non controlling interest.

3. difference between direct and indirect method of cash flow-

main difference - cash flow from operating activities.

under direct method cash flow from operating activities include amounts such as cash receipt from debtors , payment to creditors while indirect method will show net profit followed by adjustments so that net cash income from operating activities will be generated.

4. cash flow from operating activities under indirect method-

Net profit xxx

adjustment for-

non cash items xxx

non operational gains and losses (xxx)/xxx

Income tax (xxx)

change in working capital xxx/(xxx)

5. i) liquidity - purpose- ability to meet short term obligations

ii) solvency - purpose- ability to meet long term obligations

iii) profitability - purpose - ability to generate profits

iv)marketability- purpose- ability to sell products in market and generate revenues.

6. working capital ratio - purpose - finding out working capital position of enterprise.

computation= current assets/current liabilities

acid test ratio- purpose - ability of company to use its near cash & quick assets for meeting immediate liabilities.

computation- cash + accounts receivables + short term investments/ current liabilities

current ratio- purpose - to find out ratio of current assets to current liabiliies

computation- current assets/ current liabilities

7.These ratio tells company's position as per different scenarios.

intended users - investors, board of directos, external auditors, internal auditor

10. criteria for cash flow to be classified as cash quivalents- highly liquid investments having a maturity of three months or less.

ekkarill92 answered 1 year ago

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