• Internal users
– Determine dividend policy
– Evaluate cash generated by operations
– Review investing and financing policy
• External users
– Assess firm’s ability to increase dividends
– Assess firm’s ability to pay debt from operations
– Assess firm’s relationship of cash from operations
to total cash
• Alternative presentations:
• Direct method
– Presents the income statement on a cash basis
– Encouraged by FASB 95
– Supplemental information required: reconciliation of net
income to cash provided by operations
• Indirect method
– Adjusts net income for items that affected net income but did
not affect cash
– Supplemental information required: cash paid for income
taxes and for interest
CashCash
flows fromrece
operat
Net earnings
Cash
Indirect
paid
Provision for dep
Chapter 10, Slide #10
Provision for allow
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Cash Flows From Investing Activities