Case Study 6

Statement of Cash Flow

Elizabeth Berard Rojas

DeVry University

Instructor: Haddad, Tanya

10/11/11

To calculate the statement of cash flows from operating activities for the company, begin with the Net income that you would find in the Income Statement. Next, you will need to add the depreciation expense back that was deducted from the operating expenses in the income statement; because it was deducted, net income does not correspond to the cash outflow and once we add it up we will eliminate it. (Depreciation Expense)

Then you will need to compare the current assents and current liabilities of the company between the current year and previous year. On current assets when looking at the accounts receivable there was an increase from 2009 to 2010 of $10,000 the company will need to decrease the $10,000 since it was no cash flow of that amount. Afterword’s we will need to look up the Prepaid Expenses and do the same since there was an increase. On the inventory there was a decrease from 2009 to 2010 then the company will need to add it back up since the company purchased less than they had estimated to. (Changes in noncash in current assets)

Afterwards, the company will start looking at the current liabilities starting with the accounts payable and since there was an increase in accounts payable from 2009 to 2010, it informs the company that they received $13,000 more of goods they had actually paid for and will have to be added back to the income statement. (Changes in current liabilities) Lastly, the company will look at the income taxes payable and there is a decrease from 2009 t0 2010 of $6,000 showing that there was $6,000 less paid on the taxes period.

One of the most important factors to consider when analyzing a company from a fundamental perspective is that company’s ability to generate free cash flow. Cash flow represents the flow of cash earned and spent in a company. This pattern reveals how much money is available in a company at a given time....