Chapter 11 - Statement of Cash Flows

These flashcards include key terms and definitions related to the Chapter 11 content on the Statement of Cash Flows.

Statement of Cash Flows

A financial statement that provides aggregate data regarding all cash inflows and outflows a company receives.

Indirect Method

A method of preparing the statement of cash flows that starts with net income and adjusts for changes in balance sheet accounts.

Cash Equivalents

Short-term investments that are easily convertible into cash, typically with a maturity of three months or less.

Operating Activities

Cash flows directly related to the earnings from normal operations of the company.

Investing Activities

Cash flows related to the acquisition or sale of long-term assets and other investments.

Financing Activities

Cash flows related to external sources of financing for the enterprise, including issuing stock and borrowing.

Free Cash Flow (FCF)

Cash flow from operating activities minus capital expenditures; it indicates the cash a company is able to generate after spending the money required to maintain or expand its asset base.

Cash Conversion Cycle

A metric that measures the time taken for a company to convert its investments in inventory and receivables into cash.

Accrual Accounting

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is actually received or paid.

Direct Method

A method for reporting cash flows from operating activities where all cash receipts and cash payments are reported.

Depreciation

The allocation of the cost of a tangible asset over its useful life.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues.

Cash Flow Ratios

Metrics used to evaluate the liquidity and overall financial health of a company, often derived from the statement of cash flows.

Working Capital

Current assets minus current liabilities; it indicates the liquidity of a business.

Operating Cash Flow Ratio

A liquidity ratio that measures how well current liabilities are covered by cash generated from operating activities.

Dividends

Payments made by a corporation to its shareholder members, typically from profits.

Accounts Receivable

Money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.