Cash Flows from Operating, Investing, and Financing Activities
The cash flow statement gives information on a company’s cash receipts and payments during a specified period of time. This information can help users of financial statements (creditors, investors, analysts, etc.) evaluate a company’s liquidity and solvency. Master cash flow…
Contrast Cash Flow Statements – IFRS – US GAAP
Several differences exist between how the cash flow statement is prepared under IFRS and US GAAP. The most significant difference lies in the fact that IFRS gives companies more flexibility in regard to how interest paid or received and the…
Link Between Cash Flow Statement and Income Statement
In the preparation of a company’s cash flow statement, data from both its income statement and balance sheet is utilized. An understanding of the linkages among the cash flow statement, income statement, and balance sheet is useful for understanding a…
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…
Capitalized and Expensed Costs
Long-lived assets are assets that are expected to provide economic benefits over a future period of time; usually longer than one year. They include property, plant, and equipment (long-lived tangible assets); patents and trademarks (long-lived intangible assets); and investments in…
FCFF and FCFE Ratios
The cash flow statement can be used to compute financial ratios which measure a company’s profitability, performance, and financial strength. Other cash flow measures such as free cash flow to the firm, and free cash flow to equity, can also…
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…
