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Financial Statement AnalysisModule 4 of 9

Analyzing Statements of Cash Flows I

6

Concepts

3

Formulas

1

Decisions

4

Quiz Questions

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Key Concepts

6 concepts covered in this module.

Operating Activities (CFO)

Cash from core business operations. Start from net income (indirect) or cash receipts (direct). THE most important section.

Investing Activities (CFI)

Purchases/sales of long-term assets, investments. Negative CFI often signals growth investment.

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Formulas

3 essential formulas for this module.

CFO (Indirect Method)

CFO = NI + Non-cash charges + ΔWC

Where: Add depreciation, subtract gains, adjust for changes in current assets/liabilities

WC Adjustment Rule

ΔCurrent Asset ↑ = Subtract from NI; ΔCurrent Liability ↑ = Add to NI

Where: Increase in AR means cash not yet collected; increase in AP means cash not yet paid

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Decision Frameworks

1 decision frameworks to guide your analysis.

Direct vs Indirect method?

  • Direct: better for understanding actual cash flows (preferred by IASB)
  • Indirect: more commonly used, easier to prepare, shows link to NI

Mind Map

Visual overview of how concepts connect in this module.

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Operating Activities (CFO)

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Answer
Cash from core business operations. Start from net income (indirect) or cash receipts (direct). THE most important section.
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Analyzing Statements of Cash Flows II