UNDERSTANDING CASH FLOW STATEMENTS
After completing this chapter, you will be able to do the following:
- compare cash flows from operating, investing, and financing activities and classify cash flow items as relating to one of those three categories given a description of the items;
- describe how non-cash investing and financing activities are reported;
- contrast cash flow statements prepared under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (US GAAP);
- distinguish between the direct and indirect methods of presenting cash from operating activities and describe arguments in favor of each method;
- describe how the cash flow statement is linked to the income statement and the balance sheet;
- describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data;
- convert cash flows from the indirect to direct method;
- analyze and interpret both reported and common-size cash flow statements;
- calculate and interpret free cash flow to the firm, free cash flow to equity, and performance and coverage cash flow ratios.
The cash flow statement provides information about a company's cash receipts and cash payments during an accounting period. The cash-based information provided by the cash flow statement ...