Chapter 16

Statement of Cash Flows

Accounting, 21st Edition
Warren Reeve Fess

© Copyright 2004 South-Western, a division

PowerPoint Presentation by Douglas Cloud of Thomson Learning. All rights reserved.
Professor Emeritus of Accounting
Pepperdine University
Task Force Image Gallery clip art included in this
electronic presentation is used with the permission of
NVTech Inc.
Some
Some of of the
the action
action hashas been
been automated,
automated,
so
so click
click the
themouse
mouse whenwhen you
you see
see this
this
lightning
lightning bolt
bolt in
in the
thelower
lower right-hand
right-hand
corner
corner of of the
the screen.
screen. YouYou can
can point
point and
and
click
click anywhere
anywhere on on the
the screen.
screen.
 Objectives
Objectives
1. SummarizeAfterthe types of cash
studying this flow activities
After studying this
reported in chapter,
the statement
you of cash flows.
should
chapter, you should
2. Prepare a statement
be of to:
able cash flows, using
be able to:
the indirect method.
3. Prepare a statement of cash flows, using
the direct method.
4. Calculate and interpret the free cash flow.
 Reporting
Reporting Cash
Cash Flows
Flows
The statement of cash flows reports cash flows
by three types of activities:
1. Cash flows from operating activities – transactions
that affect net income.
2. Cash flows from investing activities – transactions
that affect noncurrent assets.
3. Cash flows from financing activities – transactions
that affect equity and debt of the entity.
 Reporting
Reporting Cash
Cash Flows
Flows
Increases in Cash Decreases in Cash

Operating
(receipts from Operating
(payments for
revenues) expenses)

Investing
(receipts from sales of Investing
(payments for acquiring
noncurrent assets) noncurrent assets)

Financing
(receipts from issuing Financing
(payments for treasury stock,
equity and debt securities) dividends, and redemption of
debt securities)
 Cash
Cash Flows
Flows from
from Operating
Operating Activities
Activities
Typical cash inflows Typical cash outflows
What are some of the What are some of the
typical cash inflows from typical cash outflows from
operating activities?` operating activities?
Sales of goods Merchandise
and services purchases
Interest Payments of
revenue wages and
other expenses
Dividend
revenue Tax payments
Cash
Cash Flows
Flows from
from Investing
Investing Activities
Activities
Typical cash inflows Typical cash outflows
What are some of the typical What are some of the
cash inflows from investing typical cash outflows
activities? from investing
activities?
Sales of fixed
assets Purchase of
fixed assets
Sale of long-
term Purchase of
investments long-term
investments
Cash
Cash Flows
Flows from
from Financing
Financing Activities
Activities
Typical cash inflows Typical cash outflows
What are some of the What are some of the
typical cash inflows from typical cash outflows from
financing activities? financing activities?
Issuing bonds Paying cash
and long-term dividends
notes payable Repaying debt
Issuing Acquiring
preferred and treasury stock
common stock
 Noncash
Noncash Investing
Investing and
and
Financing
Financing Activities
Activities
 Issuing bonds to acquire land

 Issuing common stock for

convertible preferred stock
 Issuing a long-term note to
acquire equipment
 Issuing a stock dividend
No
No cash
cash flow
flow per
per share
share isis reported
reported in
in
the
the financial
financial statements
statements because
because the
the
user
user might
might incorrectly
incorrectly interpret
interpret this
this as
as
the
the amount
amount available
available for
for dividends.
dividends.
 The
The Indirect
Indirect Method
Method
Balance Sheet
Cash
Liabilities
Noncash
Assets Stockholders’
Equity

Assets = Liabilities + Stockholders’ Equity

Cash + Noncash Assets = Liabilities + Stockholders’ Equity
Cash = Liabilities + Stockholders’ Equity – Noncash Assets
 The
The Indirect
Indirect Method
Method
Balance Sheet
Cash
Liabilities
Noncash
Assets Stockholders’
Equity

Assets = Liabilities + Stockholders’ Equity

Cash + Noncash Assets = Liabilities + Stockholders’ Equity
Cash = Liabilities + Stockholders’ Equity – Noncash Assets
1 2 3
The cash flows are determined by analyzing liabilities,
stockholders’ equity, and noncash assets.
 The
The Indirect
Indirect Method
Method

Start
Start with
with the
the accrual
accrual basis
basis net
net income
income
(shown
(shown inin the
the income
income statement,
statement, thethe
Retained
Retained Earnings
Earnings account,
account, oror the
the
statement
statement ofof stockholders’
stockholders’ equity).
equity).
 The
The Indirect
Indirect Method
Method
Find
Find the
the net
net income.
income.
ACCOUNT Retained Earnings ACCOUNT NO. 32
Balance
Date Item Debit Credit Debit Credit
2006
To
To statement
statement
Jan. 1 Balance 202,300
Dec. 31 Net income 108,000 310,300
31 Cash dividends 28,000 282,300
 Operating Activities – Indirect Method
Cash flows from operating activities:
Net income per income statement $108,000

Add:
Depreciation $ 7,000
Decrease in inventories 8,000
Increase in accrued expenses 2,200 17,200
$125,200
Inc. in accounts receivable $ 9,000
Deduct:
Dec. in accounts payable 3,200
Dec. in income taxes payable 500
Gain on sale of land 12,000 24,700
Net cash flow from operating activity $100,500
 The
The Indirect
Indirect Method
Method

Next,
Next, wewe need
need toto determine
determine depreciation
depreciation expense
expense
for
for the
the year.
year. IfIf itit isn’t
isn’t given
given on
on the
the income
income
statement,
statement, sometimes
sometimes itit can can be
be found
found by
by analyzing
analyzing
the
the Accumulated
Accumulated Depreciation
Depreciation account.
account.
 The
The Indirect
Indirect Method
Method
Determine
Determine depreciation
depreciation expense.
expense.
ACCOUNT Accumulated Depreciation--Building ACCOUNT NO. 17
Balance
Date Item Debit Credit Debit Credit
2006
Jan. 1 Balance 58,300
Dec. 31 Depreciation for year 7,000 65,300

to
to statement
statement
 Operating Activities – Indirect Method
Cash flows from operating activities:
Net income per income statement $108,000
Add:
Depreciation $ 7,000
Decrease in inventories 8,000
Increase in accrued expenses 2,200 17,200
Deduct: $125,200
Inc.Because Depreciation
in accounts receivable Expense
$ 9,000
Dec.reduced
in accounts
net payable
income but did 3,200
not
Dec.require
in income
an taxes payable
outflow of cash, 500
it is
Gain on sale of land 12,000 24,700
added back to net income.
Net cash flow from operating
activities $100,500
 The
The Indirect
Indirect Method
Method

Select
Select current
current assets
assets and
and current
current
liabilities
liabilities that
that impact
impact cash
cash flow
flow and
and
determine
determine thethe increases
increases and
and decreases.
decreases.
 Changes in Current Accounts
Change
Accounts 2006 2005 Debit
Credit 9,000
Accounts receivable (net) $74,000 $65,000 8,000
Inventories 172,000 180,000 3,200
Accounts payable (mdse.) 43,500 46,700 2,200
Accrued expenses payable 26,500 24,300 500
Income taxes payable 7,900 8,400
Determine the debit or
credit change of each
item above.
 Changes in Current Accounts
Change
Accounts 2006 2005 Debit
Credit 9,000
Accounts receivable (net) $74,000 $65,000 8,000
Inventories 172,000 180,000 3,200
Accounts payable (mdse.) 43,500 46,700 2,200
Accrued expenses payable 26,500 24,300 500
Income taxes payable 7,900 8,400
These debit changes are subtracted from net
income in the operating activities section of
the statement of cash flows. Think of these
debits as deductions from net income in
arriving at net cash flow from operations.
 Changes in Current Accounts
Change
Accounts 2006 2005 Debit
Credit 9,000
Accounts receivable (net) $74,000 $65,000 8,000
Inventories 172,000 180,000 3,200
Accounts payable (mdse.) 43,500 46,700 2,200
Accrued expenses payable 26,500 24,300 500
Income taxes payable 7,900 8,400
These credit changes are added to net income in the
operating activities section of the statement of cash
flows. Think of these credits as additions to net
income in arriving at net cash flow from operations.
 Operating Activities—Indirect Method
Cash flows from operating activities:
Net income per income statement $108,000
Add:
Depreciation $ 7,000
Decrease in inventories 8,000
Increase in accrued expenses 2,200 17,200
$125,200
Inc. in accounts receivable $ 9,000
Dec. in accounts payable 3,200
Dec. in income taxes payable 500
Gain on sale of land 12,000 24,700
Net cash flow from operating
activities $100,500
 The
The Indirect
Indirect Method
Method

Analyze
Analyze the the income
income statement
statement toto determine
determine
ifif there
there are
are any
any gains
gains or
or losses
losses from
from selling
selling
investments,
investments, equipment,
equipment, etc.etc.
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006
Sales $1,180,000
Cost of merchandise sold 790,000
Gross profit $ 390,000
Operating expenses:
Depreciation expense $ 7,000
Other operating expenses 196,000
Total operating expenses 203,000
Income from operations $ 187,000
Other income:
Gain on sale of land $12,000
$12,000
Other expense:
Interest expense 8,000 4,0000
Income before income tax $ 191,000
Income tax 83,000
Net income $ 108,000
 Operating Activities—Indirect Method
Cash flows from operating activities:
Net income, per income statement $108,000
Add:
Depreciation $ 7,000
This gain was
Decrease included in net income,
in inventories 8,000 but
didIncrease in accrued
not represent anexpenses 2,200flow.
operating cash 17,200
$125,200
Inc. in accounts receivable $ 9,000
Dec. in accounts payable 3,200
Dec. in income taxes payable 500
Gain on sale of land 12,000 24,700
Net cash flow from operating
activities $100,500
The
The Indirect
Indirect Method
Method
IfIf there
there had
had been
been aa loss
loss on
on this
this
sale,
sale, the
the loss
loss would
would have
have been
been
added
added to to net
net income.
income.
 Cash
Cash Flows
Flows from
from
Financing
Financing Activities
Activities
Dividends
Dividends
ACCOUNT Dividends Payable ACCOUNT NO. 23
Balance
Date Item Debit Credit Debit Credit
2006
Jan. 1 Balance 10,000
10 Cash paid 10,000 -- --
June 20 Dividends declared 14,000 14,000
July 10 Cash paid 14,000 -- --
Dec. 20 Dividends declared 14,000 14,000

Total
Total cash
cash paid
paid $24,000
$24,000
 Cash
Cash Flows
Flows from
from
Financing
Financing Activities
Activities

Because
Because paying
paying of of dividends
dividends
affects
affects equity,
equity, itit isis aa negative
negative
$24,000
$24,000 cash
cash flowflow fromfrom
financing
financing activities
activities transaction.
transaction.
 Cash
Cash Flows
Flows from
from
Financing
Financing Activities
Activities
Sale
Sale of
of Common
Common Stock
Stock
ACCOUNT Common Stock ACCOUNT NO. 33

Balance
Date Item Debit Credit Debit Credit
2006
Jan. 1 Balance 16,000
Nov. 1 4,000 shares issued for cash 8,000 24,000
 Cash
Cash Flows
Flows from
from
Financing
Financing Activities
Activities
Sale
Sale of
of Common
Common Stock
Stock

ACCOUNT Paid-In Capital in Excess of Par--Common ACCT. NO. 34

Balance
Date Item Debit Credit Debit Credit
2006
Jan. 1 Balance 80,000
Nov. 1 4,000 shares issued for cash 40,000 120,000
 Cash
Cash Flows
Flows from
from
Financing
Financing Activities
Activities
Issuing
Issuing common
common stock
stock affects
affects equity;
equity;
therefore,
therefore, wewe have
have aa total
total positive
positive cash
cash
flow
flow of
of $48,000
$48,000 from
from this
this financing
financing
activities
activities transaction.
transaction.
 Cash
Cash Flows
Flows from
from
Financing
Financing Activities
Activities
Retirement
Retirement of
of Bonds
Bonds Payable
Payable

ACCOUNT Bonds Payable ACCOUNT. NO. 25

Balance
Date Item Debit Credit Debit Credit
2006
Jan. 1 Balance 150,000
June 30 Retired by payment of cash
at face amount 50,000 100,000
 Cash
Cash Flows
Flows from
from
Financing
Financing Activities
Activities
This
This transaction
transaction isis aa negative
negative
cash
cash flows
flows from
from financing
financing
activities
activities item
item because
because long-
long-
term
term debt
debt isis involved.
involved.
 Cash
Cash Flows
Flows from
from
Investing
Investing Activities
Activities
Purchased
Purchased aa Building
Building

ACCOUNT Building ACCOUNT NO. 18

Balance
Date Item Debit Credit Debit Credit
2006
Jan. 1 Balance 200,000
Dec. 27 Purchased for cash 60,000 260,000
 Cash
Cash Flows
Flows from
from
Investing
Investing Activities
Activities
Purchased
Purchased aa Building
Building
Purchasing
Purchasing aa building
building involves
involves aa
noncurrent
noncurrent asset,
asset, so
so this
this isis aa
negative
negative cash
cash flows
flows from
from
investing
investing activities
activities item.
item.
 Cash
Cash Flows
Flows from
from
Investing
Investing Activities
Activities
Land
Land Transactions
Transactions
ACCOUNT Land ACCOUNT NO. 16
Balance
Date Item Debit Credit Debit Credit
2006
Jan. 1 Balance 125,000
June 8 Sold for $72,000 cash 60,000 65,000
Oct. 12 Purchased for $15,000 cash 15,000 80,000
 Cash
Cash Flows
Flows from
from
Investing
Investing Activities
Activities
Land
Land Transactions
Transactions
The
The first
first transaction,
transaction, the
the sale
sale of
of
land,
land, results
results inin aa positive
positive cash
cash flow
flow
from
from investing
investing activities
activities because
because
land
land isis aa noncash
noncash asset.
asset.
 Cash
Cash Flows
Flows from
from
Investing
Investing Activities
Activities
Land
Land Transactions
Transactions

The
The $12,000
$12,000 gain
gain was
was recorded
recorded earlier
earlier on
on
Slide
Slide 29
29 as
as an
an operating
operating activity.
activity. The
The
purchase
purchase of
of land
land also
also is
is an
an investing
investing activity.
activity.
Click here to return to
Slide 29. To return to
this slide, type “43” and
press the “Enter” key.
 Refer
Refer to to Exhibit
Exhibit 66 inin your
your
textbook
textbook to to see
see the
the formal
formal
statement
statement of of cash
cash flows
flows using
using
the
the indirect
indirect approach.
approach.

Rundell Inc.
Statement of Cash Flows
For the Year Ended December 31, 2006

Cash flows from operating activities:

Net income $108,000
Add: Depreciation $ 7,000
Decrease in inventor. 8,000
Increase in accrued exp. 2,200 17,200
$125,000
Deduct: Increase in A/R $9,000
Decrease in accts. Pay. 3,200
Decrease in ITP 500
Gain on sale of land 12,000 24,700
Net cash flow from operating act. $100,500
Cash flows from investing activities:
Cash from sale of land $72,000
Less: Cash paid to pur. land $15,000
Cash paid for bldg. 60,000 75,000(3,000)
Cash flows from financing activities:
Cash received from sale of c.s. $48,000
Less: Cash paid to retire b. $50,000
Cash paid for divid. 24,000 74,000
Net cash flow for financing (26,000)
Increase in cash $71,500
Cash at beginning of year 26,000
Cash at end of year $97,500
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000
Cost of merchandise sold 790,000
Gross profit $ 390,000
Operating expenses:
Depreciation expense $ 7,000
Other operating expenses 196,000
Total operating expenses 203,000
Income from operations $ 187,000
Other income:
Gain on sale of land $12,000
Other expense:
Interest expense 8,000 4,000
Income before income tax $ 191,000
This
This
Income
is an accrual basis income statement.
taxis an accrual basis income statement.
83,000
The
The
Net direct
directmethod
income methodof ofreporting
reportingcash
cash flows
flowswill
$ 108,000 will
essentially
essentiallyconvert
convertthis
thisto
toaacash
cashbasis
basisstatement.
statement.
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000
Cost of merchandise sold 790,000
Gross profit Cash collected $ 390,000
from customers Changes
Operating expenses:
Debit Credit
Depreciation expense $ 7,000
Other operatingSales
expenses 196,000 1,180,000
Receivables
Total operating expenses 9,000 203,000
Income from operations $ 187,000
Other income:
Note:
Note:
Gain on
The
The
sale of
changes in$12,000
landchanges in
the
the current
current balance
balance
Other expense: sheet
sheet accounts
accounts areare determined
determined by by
Interest expense
comparing the 8,000
beginning 4,000ending
and
comparing
Income before income tax the beginning and ending
$ 191,000
Income tax balances.
balances. Receivables
Receivables increased
increased
83,000 by
by
Net income $9,000
$9,000 during
during the
the period.
$ 108,000
period.
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000 $1,171,000
Cost of merchandise sold 790,000
Gross profit Cash collected $390,000
from customers Changes
Operating expenses:
Debit Credit
Depreciation expense $ 7,000
Other operatingSales
expenses 196,000 1,180,000
Receivables
Total operating expenses 9,000 203,000
Cash
Income from operations 1,171,000 $187,000
Other income:
Gain on sale ofThe
landincrease
The in
in receivables
increase$12,000 receivables
Other expense:
represents
represents aa reduction
Interest expense reduction
8,000
in cash
in4,000
cash
inflow
inflowtax
Income before income relative
relative to to the
the$accrual
accrual
191,000
Income tax revenue reported on the income 83,000
Net income revenue reported on the income
$ 108,000
statement.
statement.
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000 $1,171,000
Cost of merchandise sold 790,000
Gross profit $390,000
Cash payments for
Operating expenses: Changes
merchandise
Depreciation expense $ 7,000
Debit Credit
Other operating
Cost of expenses
mdse. sold 196,000
790,000
Total operating expenses 203,000
Inventories 8,000
Income from operations $187,000
Other income:Accounts payable 3,200
Cashof land
Gain on sale $12,000
Other expense:
Interest expense 8,000 4,000
Income before income tax $ 191,000
Income tax 83,000
Net income $ 108,000
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000 $1,171,000
Cost of merchandise sold 790,000 (785,200)
Gross profit $390,000
Cash payments for
Operating expenses: Changes
merchandise
Depreciation expense $ 7,000
Debit Credit
Other operating
Cost of expenses
mdse. sold 196,000
790,000
Total operating expenses 203,000
Inventories
Income from operations
minus 8,000
$187,000
Other income:Accounts payableplus 3,200
Cashof land
Gain on sale $12,000 785,200
Other expense:
A decrease in Inventories
Interest expenseA decrease in Inventories
8,000
(credit
4,000(credit
change)
change)
Income before income taxand
and an an decrease
decrease in
in Accounts
Accounts
$ 191,000
Income tax Payable
Payable (debit
(debit change)
change) have
83,000
have the
the
Net income $ 108,000
opposite
opposite effects.
effects.
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000 $1,171,000
Cost of merchandise sold 790,000 (785,200)
Gross profit $ 390,000
Operating expenses:
Depreciation expense $ 7,000 0
Other operating expenses 196,000
Depreciation
Total operating expenses Changes203,000
Income from operations Debit $ Credit
187,000
Other income:Depreciation expense 7,000
Gain on sale of land depreciation
Accumulated $12,000 7,000
Other expense:
Interest expense There
There isis no
no cash
cash flow
flow for
8,000 for
4,000
Income before income tax $ 191,000
Income tax
depreciation
depreciation expense.
expense. 83,000
Net income $ 108,000
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000 $1,171,000
Cost of merchandise sold 790,000 (785,200)
Gross profit $ 390,000
Operating expenses:
Depreciation expense $ 7,000 0
Other operating expenses 196,000 (193,800)
Total operating expenses
Cash payments for 203,000
Income fromoperating
operations Changes
$ 187,000
expenses Changes
Other income: Debit Credit
Gain onOperating
sale of land
expenses $12,000
196,000
Other expense:
Accrued expenses
InterestCash
expense
minus 2,200
8,000 193,800
4,000
Income before income tax $ 191,000
Income tax 83,000
Net income $ 108,000
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000 $1,171,000
Cost of merchandise sold 790,000 (785,200)
Gross profit $ 390,000
Gain on sale of
Operating expenses: Changes
investments
Depreciation expense $Debit
7,000 Credit 0
Cash
Other operating expenses 72,000
196,000 (193,800)
TotalInvestments
operating expenses 60,000
203,000
Income from Gain on sale of invest.
operations $ 12,000
187,000
Other income:
Gain on sale of land $12,000 0
Other expense:
The
Interest
The cash
cash inflow
expense inflow of of $72,000
8,000 will
$72,000 4,000
will
Income before income tax $ 191,000
be
Income tax
shown in the investing
be shown in the investing section section83,000
of
of the
Net income the statement
statement of of cash
cash flows
flows and
and
$ 108,000
the
the gain
gain isis ignored.
ignored.
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000 $1,171,000
Cost of merchandise sold 790,000 (785,200)
Gross profit $ 390,000
Operating expenses:
Depreciation expense $ 7,000 0
Cash paid
Other operating for
expenses Changes
196,000 (193,800)
interest expense
Total operating expenses Debit Credit
203,000
Income fromInterest expense
operations 8,000 $ 187,000
Other income:
Cash
Gain on sale of land $12,000 0
Other expense:
Interest expense 8,000 4,000 (8,000)
Income before income tax $ 191,000
Income tax There
There isis no
no interest
interest payable
payable
83,000
Net income account at the end of the $ 108,000
year.
account at the end of the year.
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000 $1,171,000
Cost of merchandise sold 790,000 (785,200)
Gross profit $ 390,000
Operating expenses:
Depreciation expense $ 7,000 0
Other operating expenses 196,000 (193,800)
Total operating
Cash paidexpenses
for 203,000
Changes
Income from operations
income taxes $ 187,000
Debit Credit
Other income:
Gain onIncome
sale oftax expense
land 83,000
$12,000
Income tax payable plus
Other expense: 500
InterestCash
expense 8,000 (83,500)
4,000 (8,000)
Income before income tax $ 191,000
Income tax 83,000 (83,500)
Net income $ 108,000
 Rundell Inc.
Income Statement
For the Year Ended December 31, 2006 Cash Basis
Sales $1,180,000 $1,171,000
Cost of merchandise sold 790,000 (785,200)
Gross profit $ 390,000
Operating expenses: Two
Two different
different
Depreciation expense
Other operating expenses
$ 7,000
196,000
viewpoints 0
viewpoints(193,800)
Total operating expenses of
of income
income from
203,000 from
Income from operations $ 187,000
Other income: operations
operations
Gain on sale of land $12,000 0
Other expense: Accrual
Accrual Cash
Cash
Interest expense 8,000 Basis
Basis
4,000 Basis
Basis
(8,000)
Income before income tax $ 191,000
Income tax 83,000 (83,500)
Net income $ 108,000 $ 100,500
Operating Activities—Direct Method

Cash flows from operating activities:

Cash inflows:
Cash received from customers $1,171,000
Cash outflows:
Cash payments for merchandise $785,200
Cash payments for operating expenses 193,800
Cash payments for interest 8,000
Cash payments for income tax 83,5001,070,500
Net cash flow from operating activities $ 100,500
 Financial Analysis and Interpretation

Free
Free Cash
Cash Flow
Flow Dell Corporation
Cash flow from operations $4,195,000
Less: Cash used to purchase fixed
assets to maintain productive
capacity used up in producing
income during the period (482000)
Less: Cash used for dividends —–
Free cash flow $3,713,000
Free cash flow as a percent of cash
flow from operating activities 89%
 Financial Analysis and Interpretation

Free
Free Cash
Cash Flow
Flow Dell Corporation
Cash
Use:flow
Use: Tofrom
To operations
measure
measure the
the financial $4,195,000
financial strength
strength of
of aa
Less: Cash used toA
business. purchase fixed
business. A company that
company that hashas
assets to maintain productive
positive
positive free
free cash
cash flow
flow isis able
able to
to fund
fund
capacity used up in producing
internal
internal
income growth,
growth,
during retire
retire debt,
the period debt, andand enjoy
enjoy
(482000)
financial
financial
Less: Cash flexibility.
used forflexibility.
dividends (—)
Free cash flow $3,713,000
Free cash flow as a percent of cash
flow from operations 89%
Chapter 16

The
The End
End