Chapter 10 Financial Statement Analysis Exam

Creditors use the statement of cash flows to?

Assess a firms ability to pay debt with cash from operations

In the statement of cash flows, the payment of interest would appear as part of?

Operating activities

In the statement of cash flows, the sale of PPE would be an

Investing cash inflow

If a company used the indirect method in the statement of cash flows, a loss on the sale of PPE would be

Operating cash inflow

What ratio should be used to obtain an indication of a firms short run ability to make capital expenditures and pay dividends?

Operating cash flow per share

How is an increase in noncurrent assets shown in the statement of cash flow?

Investing cash outflow

How would a loss on sale of land be put on the statement of cash flows?

Added to net income

How would an increase in aaccount payable be put on the statement of cash flows?

Added to net income

The purhase of land would be classified in the statment of cash fows as an

investing cash outflow activity

The statement of cash flows is most utilized by

Managers, equity analysts, commercial lenders, and investment bankers

Management could use the statement of cash flows to

Determine dividend policy, cash generated by operation, and investing and financing policies

Creditors and invesors may use the statemt of cash flows to

Determine a firms ability to increase dividends, its abliity to pay debt with cash from operation, and the percentage of cash from operations in relation to the cash from financing

The order of the statement of cash flows is

Operating Activities, Investing Activities, and then Financing Activities

The direct method presents the income statement on a

Cash basis

The indirect method

Adjusts net income for items that affected net income but not cash

Advantages of Direct Method are

Shows the operating cash recepits and payents; gives knowlede of where operating cash flows came from and how ash was used in past periods

Advantage of the indirect method is

Focusing on the differences between income and cash flow from operating activities

Ratios pertaining to the Statement of Cash Flows

Operating CF / Current Maturities or Long Term Debt, Operating cash flow / total debt, operating cash flow per share, operating cash flow / cash dividends

Operating CF / Current Maturities of long term debt

Indicates a firms abilities to meet its current maturities of debt

Operating Cash Flow / Total Debt

Indicates a firms ability to cover total debt with the yearly oprating cash flow, higher the ratio the better

Operating cash flow per share

Indicates the funds flow per common share outstanding

Equation for Operating Cash Flow per Share =

(Operating cash flow - preffered dividends) / Diluted weighted average common shares outstanding

Operating Cash Flow / Cash Dividends

Indicates a firms ability to cover cash dividends with the yearly operating cash flow, the higher the ratio the better