Module 5: Discussion Forum
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This week we are studying the statement of cash flows. Operating cash flow represents the cash that flows in and out of the company on a day-to-day basis. For example, cash inflows come from collected revenues and cash outflows occur when the firm pays its normal day-to-day expenses. We, of course, would prefer to see a positive total on the net cash provided by operating activities, because it implies that cash inflows are greater than cash outflows. In your textbook, the author discusses 4 financial ratios associated with operating cash flows; please study these ratios. Remember that the denominator on the ratio operating cash flow/current maturities of long-term debt is being revised to current liabilities; therefore, we will report the ratio as operating cash flow/current liabilities (see discussion on Page 3 of the Module 5 lesson).
This week, find the statement of cash flow for a firm of your choosing and report the cash flow ratios. Please report and discuss 3 years of ratios for the three ratios related to debt and dividends but only the current years cash flows per share. Show numerators and denominators for all ratios and then discuss their economic meaning. It is possible that your firm does not pay dividends (you will see dividends in the financing section of the cash flow statement).
The cash flow per share ratio is particularly challenging since most of the numbers in the statements are in thousands or millions (look at the top of the statement for a note) while the number of shares outstanding only for the current year (in yahoo.finance, under your firms page, look in Key Statistics and you will find the number of shares in the right-hand column about halfway down the page). You only have to report ONE YEAR on the cash flow per share. Please do not report on Nike, as that will be the firm posted as an example. Again, please do not duplicate firms by including the name of your chosen firm in the title to your post. Also, please respond to questions/comments from your instructor regarding your post.
3. Components of the Investing and Financing Sections
Once the operating section is complete, we move on to the investing section of the statement of cash flows. The investing activities of the company relate to purchasing fixed assets such as property, plant and equipment, and investing in the stocks and bonds of other companies.
The cash inflows from investing activities would include the cash received for selling a fixed asset such as a building or a truck or from selling an investment in stock of another company.
The cash outflows from investing activities would include the cash paid to acquire property, plant and equipment or the cash paid to invest in the stock of another company.
Financing activities on the statement of cash flows relate to the company’s equity and long-term debt. The cash inflows for financing activities would include cash received from the sale of common or preferred stock to investors, or the cash received from issuing bonds payable. The cash outflows related to financing activities would include cash paid as dividends to investors, and cash paid to reacquire treasury stock.