Direct and Indirect Cash Flow Statements
The first step in preparing the cash flow statement involves the determination of the total cash flows from operating activities. The cash flow from the operations section of the cash flow statement can be prepared using either the direct method…
Convert Cash Flows from the Indirect to Direct Method
Sometimes, a company may prepare the cash flow from the operations section of its cash flow statement using the indirect method. However, users of its financial statements may desire to review the direct-format cash flow from operations. This may arise…
FCFF and FCFE Ratios
Other cash flow measures such as free cash flow to the firm, and free cash flow to equity, can also be instrumental in the valuation of a company and its equity securities. Generally speaking, free cash flow refers to the…
Describe the Business Cycle and Its Phases
A business or economic cycle is defined as the persistent fluctuation in the gross domestic product of a given economy within a specified period. A business cycle can be described by periods of expansion and recessions. During a recession, the…
Types and Measures of Unemployment
Unemployment happens when individuals who are capable and willing to work at the current wage rates cannot acquire jobs. Similarly, when there are few available jobs in an economy, and yet the labor force of that economy is growing, then…
Compare Inflation Measures, Including Their Uses and Limitations
There are two major measures of inflation: the consumer price index and the producer price index. Consumer Price Index (CPI) The consumer price index is an inflationary measure that considers using a consumption basket as a tool or an indicator…
Economic Indicators, Their Uses and Limitations
Economic indicators are variables that give information about the condition of the economy. Generally, economic indicators are grouped according to whether they are leading (forward-looking), lagging (backward-looking), or coincident (simultaneous with the economy). Leading Indicators Leading indicators include share prices,…
Effects of Combined Changes in Aggregate Supply and Demand on the Economy
Aggregate Demand Aggregate demand is the total demand for goods and services in an economy. It is defined as the sum of the amount spent on real goods and services by all economic agents. It is calculated as shown below….
Production Function Approach to Analyzing the Sources of Economic Growth
The production function (or Solow growth model) is used to determine the economy’s underlying source of growth. It attributes the growth of the gross domestic product (GDP) and productive capacity to: the application and discovery of new technologies that enhance…
