FINA 470- Final Exam: Brandon Mendez USC Study Guide Solutions

FINA 470- Final Exam: Brandon Mendez USC Study Guide Solutions cash & cash equivalent at end of year= - ANSWERnet increase (decrease) in cash & cash equivalents + cash & cash equivalents at beg of year Cash outflows: - ANSWERhave a negative effect Cash inflows: - ANSWERhave a positive effect Operating activities - ANSWERdeliver or produce goods for sale & provide services -receive cash from customers=receivables -pay cash to suppliers= expenses/COGS -pay cash for operating expenses= expenses Investing activities - ANSWERbuy/sell long-term assets & other investments. (ex: property, plant & equipment; other companies securities) Financing activities - ANSWERobtain/repay capital (debt or equity) ©EMILLECT 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 2/14 -borrow from creditors & repay the principal -issue/repurchase stock (cash outflow) -pay dividends (cash outflow) Cash flow statement includes: - ANSWER-exchange rate changes -operating, investing & financing activities -net change in cash & cash equivalents Operating Cash flows: - ANSWERnet income comes from income statement -depreciation & amortization=non-cash expense Increase in receivables= - ANSWERcash outflow (recognized but not paid yet) Decrease in receivables= - ANSWERcash inflow increase in accounts payable= - ANSWERcash inflow decrease in accounts payable= - ANSWERcash outflow increase in inventory= - ANSWERcash outflow decrease in inventory (sold)= - ANSWERcash inflow ©EMILLECT 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER 2024 Page 3/14 investing activities cash flows: - ANSWERwhen you buy a company, you gain cash & clients Common-size statement of cash flows - ANSWERdivide each section - denominator comes from income statement -divide by revenue to get a % -negative values means cash was used Indirect Method: operating cash flows - ANSWERbegins with net income & adjusts to operating cash flows -shows reasons for differences between net income & operating cash flows -mirrors forecasting approach that begins with forecast of income, then derives cash flows -IFRs permit, U.S. GAAP permit -used by majority of companies Direct Method: operating cash flows - ANSWERshows each cash inflow & outflow related to receipts & disbursements -provides info on the specific sources of operating cash receipt