Statement of cash flows

Of each of the financial statements, the statement of cash flows (Table 2.3) seems to receive the least amount of attention. Knowing 

Statement of Cash Flows 12 Months Ended December 28, 20xx In Millions (USD ), unless otherwise specified 

Restructuring and other charges related to the transaction with Tingyi — 

Noncash foreign exchange loss related to Venezuela devaluation 111 

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The three financial reports that are essential to the operation of any organization are the balance sheet, the income statement, and the statement of cash flows (Table 15-1). Please note that several other types of financial... 

Throughout the fiscal year, the inflows and outflows of cash are recorded in the statement of cash flows. 

Table 15-5. Whole Health Partners Statement of Cash Flows for Year 1 ( ) ...

Budgeted financial statements, often called pro forma financial statements, show how the pharmacy organization s financial statements will appear at a specified time if operations proceed according to plan. Budgeted financial statements include a budgeted income statement, a budgeted balance sheet, and a budgeted statement of cash flows. 

Prepare the financial statements (income statement, statement of owner s equity, balance sheet, statement of cash flows, etc.). 

Although working capital, the current ratio, and the acid-test ratio are effective ways to analyze a firm s liquidity, they should not be the only tools employed. The statement of cash flows is as viable as these ratios for analyzing liquidity. 

The cash flow statement, also called the consolidated statement of cash flow or statement of consolidated cash flow is a summary of the cash flow of a company over a given period of time. The cashflow equals cash receipts minus cash payments over a given period of time or equivalently, net profit plus amounts charged off for depreciation, depletion, and amortization. These latter three items are added back because they do not represent any cash transactions. Depletion, which is similar to depreciation, accounts for the exhaustion of natural resources such as oil, timber, and minerals. The cash flow statement is a measure of a company s financial health and, in recent years, has become a very important feature of the annual report. 

Table 2.3 Statement of Cash Flows PepsiCo (Data Obtained from SEC.gov)...

Information within the statement of cash flows is useful for current and potential investors and creditors because it can help answer questions such as ... 

The information presented in the statement of cash flows helps answer these questions. Essentially, the statement of cash flows begins with how much cash the company has at the start of the period, adds any cash received, subtracts cash spent, and is then left with cash on hand at the end of the period. In developing the statement of cash flows, items from the balance sheet and income statement are used and then organized by operating, investing, and financing activities. 

As mentioned earlier, all four financial statements should be consulted for an accurate picture of the company. Each statement alone cannot clearly depict the company s current state of affairs. Compiling the information provides a meaningful and distinct view of the company. If we want to identify what amount ovmed or owed at a particular point in time, the balance sheet is an excellent representation. To know which operations have contributed to the firm s profit or loss in a given period, the income statement provides this information. Finally, to know the amount of cash flowing into and out of the business over time, the statement of cash flows holds the answer. 

Finally, understanding how each financial statement is not only related to each other, but connected to each other is important. Looking back to Tables 2.1 to 2.3, or viewing the modified financial statements (Table 2.4), the connection between the financial statements through certain line items is clear. Notice that ending cash on the cash flow statement is equal to cash on the balance sheet. Net income on the income statement is equal to the net income on the statement of cash flows. Net income from the income statement is added to retained earnings on the balance sheet, and thus stockholders equity increases, though this transaction is not quite as apparent. 

This chapter focused on financial statements, giving a description of financial statements and how they are used to communicate important financial information. Next, an explanation about what financial statements are used for and how they are used was provided. Further, each component of a financial statement (1) balance sheet, (2) income statement, and (3) statement of cash flows was described in detail, ending with the interrelationship between the three financial statements. 

Rarely, all of the information needed for analysis is made obvious on the balance sheet, income statement, or statement of cash flows. Instead, it may require closer examination to find the necessary information. The numbers reported in the financial statements may not be exactly what is needed for financial analysis and day-to-day decision making by those in supply chain and operations because of the assumptions made by a company s financial experts. Accountants have the liberty to make assumptions based on historical trends when preparing financial statements. Examples of these assumptions include the amount of accounts receivable will not be collected, or what liabilities exist, such as tax, pension, and legal liabilities. Accountants also make assumptions about how to value tangible assets, how to value brand and intangible assets, and an amount to allocate to goodwill. As a result of these assumptions, financial results can vary widely. 

Table 4.4 PepsiCo Abbreviated Statement of Cash Flow/s (Operating Activities)...

This ratio provides insight into whether or not the cash generated by the company s operations is sufficient to repay interest, principal, and other debt obligations. Other debt obligations may include early retirement of debt and lease payments. The information to complete this ratio comes from the statement of cash flows. As this ratio is regularly changed to fit the user s particular circumstance, you may find still that EBIT or a whole host of other variables are used in the numerator, but still we include all debt obligations in the denominator. 

Unlike the cash flow from operations on an accountant s statement of cash flows that is found in an annual report, free cash flow is independent of financing and nonoperating items. If a company reports a significant gain or loss that is not directly related to the company s normal core business, such as a one-time gain on the sale of equipment, this amount should be excluded from the free cash flow calculation for an accurate picture of the company s normal cashgenerating ability. Thus, FCF depends on sales revenue, operating costs and taxes, and required investments in operations. 

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