Assignment Specifications Purpose:
This assignment aims at developing a clear understanding of students on cash flows statement and use of cash flow statement to comprehend different key business decisions taken by the management. They will have to consult relevant literature and demonstrate understanding of key concepts. As part of their assignment, they will also conduct a minor empirical analysis on cash flow statement.
Do the relevant research to critically examine the relative information content of income statement and statement of cash flows. Why do investors find both income statement and statement of cash flows useful?
Appendix A, B, and C contain cash-flow statements from three companies. Each cash-flow statement has Three years of data. Examine the contents of these cash-flow statements carefully. Answer the following questions about each of the three cash-flow statements.
- For each of the three years on the Statement of Cash Flows:
- What are the major sources of cash for each firm? What are the major uses of cash for each firm?
- What was the trend in cash flow from (continuing) operations for each firm?
- Was cash flow from operations greater than or less than net income? Explain in detail the major reasons for the difference between these two figures. (Answer this question using only Appendix B: Cash flow statement for BHP Limited).
- Was the firm able to generate enough cash from operations to pay for all of its capital expenditures?
- Did the cash flow from operations cover both the capital expenditures and the dividend payments made by the firm (if any)?
- If the firm has generated excess cash from operations, how did the firm invest the excess cash? If not, what were the sources of cash the firm used to pay for the capital expenditures and/or dividends?
- Did the firm use the working capital (current asset and current liability) accounts other than cash and cash equivalents as sources of cash, or uses of cash? (Answer this question using only Appendix B: Cash flow statement for BHP Limited).
- What other major items affected cash flows?
- What was the trend in capital expenditures for each firm?
- What was the trend in dividends (if any) for each firm?
- What was the trend in net borrowing (proceeds from borrowing less payments of short- and long-term debt) for each firm?
- What was the trend in working capital accounts? (Answer this question using only Appendix B: Cash flow statement for BHP Limited)