This document provides an overview of a schedule for understanding financial statements over 5 days. Day 4 focuses on cash flows, which record cash provided by sources and consumed by uses. The statement of cash flows provides information about a company's use of cash, investing, financing, and ability to continue operations and meet obligations. Cash flows come from operating, investing, and financing activities, though companies have some flexibility in categorizations. Free cash flow is a powerful indicator, calculated as cash from operations minus capital expenditures. Various models can be used to calculate free cash flow.
2. Schedule for Week
Day 1: Introduction to financial
statements
Day 2: Income statement
Day 3: Balance sheet
Day 4: Cash flows
Day 5: Beyond the basics
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4. Accrual Method
Records revenues as soon as the “sale”
occurs
Records expenses as soon as the bill is
received
IE, transactions enter the financial
records when they occur, not when
cash changes hands
Accrual method, therefore, shows
“scores,” not real spendable dollars
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5. Statement of Cash Flows
Record of cash provided by cash
sources and of cash consumed by cash
uses.
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6. Cash Flows (cont.)
Information about use of cash
Information about investing and
financing
Ability to continue as a going concern
Ability to generate future positive cash
flows
Ability to meet obligations and pay
dividends
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7. Cash Flows
From operations
From investing
From financing
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8. Flexibility
Companies have some flexibility in
categories for entries.
Total change in cash, however, will not
change.
Overwhelming majority of all accounting
standards deal with balance sheet and
income statement, not cash flows
statement.
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9. Cash and Cash Equivalents
The category Cash and Cash
Equivalents shows how much “cash”
the company had at the start or end of a
period.
Note the changes in this category.
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10. Free Cash
Powerful tool for making a company
successful
Powerful indicator for investors
Cash that is left over after productive
capacity is maintained or expanded
Permits expansion, paying down debt,
buying back shares, etc.
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11. Free Cash
Several ways to calculate it
Companies create their own models
Gross way to do it:
Cash from operating activities
Minus capital expenditures
Equals free cash flow
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12. American Standard Model
Cash from operating activities
Minus capital expenditures
Plus proceeds from disposal of property
Plus proceeds from sale and
leasebacks
Equals free cash flow
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13. VF Model
Cash from operating
Minus cash used in investing
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14. Finding Company’s Formula
Often requires you to do some digging
in the 10-K
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15. Presented by:
James K. Gentry, Ph.D.
Clyde M. Reed Teaching Professor
School of Journalism and Mass Communications
University of Kansas
jgentry@ku.edu
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