Financial Accounting: Tools for Business Decision Making, 7th Edition

CHAPTER 12

STATEMENT OF CASH FLOWS

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

1. Indicate the usefulness of the statement of cash flows.
2. Distinguish among operating, investing, and financing activities.
3. Explain the impact of the product life cycle on a company's cash flows.
4. Prepare a statement of cash flows using the indirect method.
5. Use the statement of cash flows to evaluate a company.

Feature Story

GOT CASH?

Companies must be ready to respond to changes quickly in order to survive and thrive. This requires careful management of cash. One company that managed cash successfully in its early years was Microsoft. During those years, the company paid much of its payroll with stock options (rights to purchase company stock in the future at a given price) instead of cash. This conserved cash and turned more than a thousand of its employees into millionaires.

In recent years, Microsoft has had a different kind of cash problem. Now that it has reached a more “mature” stage in life, it generates so much cash—roughly $1 billion per month—that it cannot always ...