StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Cash Flow Statement - Coursework Example

Cite this document
Summary
Net income is the income that the business earns from its operations. Businesses calculate net profits by deducting the value of business expenses deemed legitimate for tax purposes from gross income or gross sales receipt…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91.4% of users find it useful
Cash Flow Statement
Read Text Preview

Extract of sample "Cash Flow Statement"

Cash Flow ment affiliation Cash Flow ment Net income is the income that the business earns from its operations. Businesses calculate net profits by deducting the value of business expenses deemed legitimate for tax purposes from gross income or gross sales receipt (Bhattacharyya, 2011, p. 88). On the other hand, net operating cash flow refers to amount that business remains with after deducting its ongoing expenses from the amount set aside to cater for such expenditure. Question 1 Conversely, amount available in the business after subtracting expenses does not readily reflect net income of the business since several discrepancies contrast the two figures. When the business makes repayment of principal loan, the repayment is made from the net income or earnings. This transaction is not included in the cash flow because they are going toward settlement of business loan. Net income is prepared based on the general accepted accounting principles (GAAP). Under the accrual accounting principle, expenses are matched with revenues earned in that accounting period (Rich, 2010, p. 56). For instance, a business purchase and pays for merchandise in May, assuming that the merchandise remain in inventory until it is sold in November (end of the accounting period of the business). To this end, business’ net operating cash flow decreases in May when the business pays for the merchandise. However, the net income figure decreases in November when the cost of goods sold is matched with the November sales. Question 2 The main difference between direct and indirect method of cash flow is on the presentation of net cash flow from operating activities. Operating cash flow under direct cash flow statement adds major operating cash receipts and subtracts major operating cash payments. The cash payments are subtracted cash receipt of the business to arrive at the net cash flow from operating activities. Operating activities section – direct method Cash receipts From customers $ xxx Cash payments To supplier (xxx) To employees (xxx) For purchasing of prepaid Assets (xxx) Interest (xxx) Income Tax (xxx) Net cash flow from operating activities (xxx) On the other hand, net income is adjusted by adding and subtracted components to yield net cash from operating activities under indirect cash flow statement. However, indirect method does not report individual items of cash inflow and outflow from operating activities. Operating activities section – indirect method Cash flow from operating activities Net income xxx Adjustment to reconcile net income to Net cash provided by operating activities Decrease in accounts receivable xxx Increase in merchandise inventory (xxx) Decrease in prepaid expenses (xxx) Decrease in accounts payable (xxx) Increase in income taxes payable xxx Decrease in interest payable (xxx) Depreciation expense xxx Loss on sale of plant assets (xxx) Gain on retirement of notes (xxx) Net cash flow from operating activities (xxx) Question 3 a The two companies are consistent in using the indirect method of cash flow statement. In addition, EA GAMES and UBISOFT recorded an increase in the net operating cash flow activities due to increase in net income and proper management of working capital. However, despite the two companies being in the same industry, EA GAME operating cash flow section has more items than in UBISOFT. These items include amortization of deferred charges, amortization of goodwill and intangible assets, asset write down and restructuring costs, changes in deferred taxes, and unearned revenues (Business week, 2014). These items can constitute to differences in cash flow from operating activities. Question 3 b In 2012, EA GAME recorded a decline in its cash flow from operating activities due to poor working capital management. In 2013, the company increased its effectiveness in management of working capital leading to increase in operating income. In this perspective, it increased account receivable thereby decreasing inventories and reducing the owing from creditors. According to 2012 and 2013 financial statement, UBISOFT reduced its inventories by purchasing less from its creditors, thereby the less amount of goods are available to debtors. On the other hand, the company manages effectively other working capital items, which leads to increase from -41.6 to 1.2 in 2013. Question 3 c UBISOFT Company is financed mainly by long-term debts, which constitute to 75% of its holdings. In 2013, the company issued common shares to the public, which increased the value of common shares in the financing options. In an attempt to reduce risk and interest expenses, EA GAME Company upholds a debt free financing policy. To this effect, all company’s debts matured in 2013 thereby making common shares the largest financing item. EA GAME is prudent and faces less risk of fluctuating market prices of debt and other risky financing options. Question 3 d The EA GAME Company increased its expenditure on capital in the year 2013 but did not make disposal of its assets. The main investment activities undertaken by the company is investment in marketable and equity securities. The Capital expenditure of UBISOFT Company increases, but at a decreasing rate. The company reduces its marketable and equity securities by $1.8M in the year 2013. Subsequently, UBISOFT increases its investment by selling off its intangible asset and cash acquisition (Business week, 2014). EA GAME Company diversifies its investment portfolio, thereby reducing its long-term risk in the investment. The company increased its investment in marketable and equity securities, which have relatively less risk. To this effect, EA GAME is prudent as far as investment is concerned. Question 4 Effective management of working capital is important to ensure an increase in cash available to spend on other expenditures. EA GAME is more reliable and promising in generating net operating cash flows. On the other hand, UBISOFT Company is very prudent and less risky in terms of its investment items. The company’s choice of financing items determines its riskiness to fluctuations of prices in the market, thereby influencing its cash flow (Robinson, 2012, p. 156). EA GAME manage its cash flow items in the most effective and efficient way. Reference list Bhattacharyya, D. 2011. Management accounting. Delhi, Pearson. Business week 2014. Financial statement. Retrieved February 21, 2014, from investing.businessweek.com/research/stocks/financials/financials.asp?ticker=EA&dataset=cashFlow&period=A¤cy=native. Business week. 2014. UBISOFT ENTERTAINMENT (UBI:Euronext Paris): Financial Statements - Businessweek. Retrieved February 21, 2014, from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=UBI:FP&dataset=cashFlow&period=A¤cy=native Rich, J. S. 2010. Cornerstones of financial & managerial accounting: current trends update. Mason, OH, South-Western/Cengage Learning. Robinson, T. R. 2012. International financial statement analysis. Hoboken, N.J., John Wiley & Sons. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=821745. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Cash Flow Statement Coursework Example | Topics and Well Written Essays - 1000 words”, n.d.)
Cash Flow Statement Coursework Example | Topics and Well Written Essays - 1000 words. Retrieved from https://studentshare.org/finance-accounting/1629646-cash-flow-statement
(Cash Flow Statement Coursework Example | Topics and Well Written Essays - 1000 Words)
Cash Flow Statement Coursework Example | Topics and Well Written Essays - 1000 Words. https://studentshare.org/finance-accounting/1629646-cash-flow-statement.
“Cash Flow Statement Coursework Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/finance-accounting/1629646-cash-flow-statement.
  • Cited: 0 times

CHECK THESE SAMPLES OF Cash Flow Statement

Applying for a Major in Economics

My intended major is economics.... Ability to get first-hand experience in this field is obviously limited for people who do not already have a background in it, so my experience in the actual practice of economics is somewhat limited – but from what I have experience at high-school, I know this will be a field that I enjoy greatly....
3 Pages (750 words) Personal Statement

Interest in Becoming a Medical Surgery Nurse

Personal statement I remember that I was four years old when I first realized that I wanted to work in the medical field.... I was sitting in a pizza parlor with my parents and other relatives when my aunt looked down at me and asked me “Do you know what you want to be when you grow up?...
4 Pages (1000 words) Personal Statement

Phil Company Marketing Strategies

Marketing Strategies Abstract Phil Company Limited aims to establish itself strongly in the electronic industry, both in the local as well as international market.... It wants to increase its present market share in the electronic industry.... For this purpose Phil has been employing the best available marketing agencies....
17 Pages (4250 words) Personal Statement

Scholarship in the University of Maryland

Topic – Personal statement I was born on July 1988 in Queens, New York, and lived in a low income housing community with my mother.... As a teenager, I was mainly interested in sports and community services.... I was educated in NYS School and, as I joined high school, I became more involved in sports and voluntary community services....
3 Pages (750 words) Personal Statement

Career Statement

A career in nursing is a highly noble profession which demands a committed and sincere attitude.... Nurses play a vital role in the medical field and their collaborative effort with physicians and other medical staff is a key requirement for providing effective treatment for patients.... hellip; The compassionate love and care shown towards a patient by the nursing community would greatly help in providing a better service to the patients....
1 Pages (250 words) Personal Statement

Why should anyone be led by me

It is a brief statement of my core beliefs and personal vision about effective leadership.... It is a brief statement of my core beliefs and personal vision about effective leadership.... Abstract ... he purpose of this paper is to explain my interest and capacity for leading others....
4 Pages (1000 words) Personal Statement

Statement of Purpose

statement of Purpose My interest in history started back in high school.... In our life, we encounter so many historical events, some catastrophic and others good.... Such events would need to be studied to learn from them.... In high school, we study history like world history, American history, civilization, world wars and other important historical events....
3 Pages (750 words) Personal Statement

Observational assignment police ride along

The purpose of this paper is to describe my experiences and my observations during a police ride along in St wendel Germany with a focus on the use of police discretion.... The St.... wendel police department is relatively small with twenty-eight male and female police officers who protect and serve the population of around 30,000....
4 Pages (1000 words) Personal Statement
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us