1. Educational Component Cash Flow Statement
April 5th, 2015

2. Recap Financial Statements Balance Sheet Cash Flow Statement
Income Statement
Balance Sheet: A snapshot in time.
Income Statement: The operations of company over the period of time. Accrual basis (even if the company has not received the payment for the product yet, it is already accounted in income)
Cash Flow Statement: demonstrates cash levels of the company.
For ex., the company can be very profitable (high net income) but have no cash on hand and become insolvent (unable to pay short term liabikities)
Demonstrates the quality of company’s income

3. Cash Flow Statement Answers 3 questions: Where did the cash come from?
What was the cash used for?
What was the change in the cash balance?
Used to access company’s liquidity, operating capabilities and risk
Demonstrates the quality of company’s income
Company might have high net income on IS but have no cash to meet its short term liabilities
If the company generates enough cash from operation to sustain the business
If the company generates enough cash to pay off existing debts as they mature
If the company has enough cash to take advantage of new investment opportunities

4. Where does cash come from?
Olena’s T-Shirt store
Selling
T-Shirts
Issuing bonds and stocks
Sale of assets (equipment)
Interest, income and dividends
Accounts receivables

5. What is cash used for? Olena’s T-Shirt store
Production of T-Shirts
Dividend payment
Repurchase the stock
Acquire property, plant, equipment
Purchase of businesses
Repay debt

6. Example: Tesla Motors, Inc.
&CIK= #TSLA- 10K_ _HTM_ITEM_8

7. 1. Operating activities 2. Investing activities
Components of CFS
Cash from regular business operations
Drives income
1. Operating activities
Purchase/sale of assets
Acquisitions
“CAPEX”
2. Investing activities
Pay dividends
Pay off the debt
Retire stocks
Issue bonds, stocks
3. Financing activities
CF from operating activities:
How much money does the company bring in from ongoing regular business operations (manufacturing of a product)
Investors are searching for positive cash flow
BUT if the company sells all of its assets and get the positive cash flow = bad

8. Connecting financial statements
Related to balance sheet and income statement :
Balance sheet: net cash flow should equal the difference between 2 consecutive balance sheets
Income statement: cash flow from operating activities starts with net income from the income statement
Go/sic  Documents to find Excel with an example of simplified cash flow

9. Summary Cash flow demonstrates company’s :
operating, financing, investing transactions
ability to generate future cash flow
ability to meet its obligations and pay dividends
need for external financing
!!Careful!! companies may make cash flow look more attractive for better credit rating
Compare the operating cash flow with the net income. If Net income is substantially higher than cash flows => the company might be accounting for too many accruals (Net income)