ADMS 1500 Lecture Notes - Lecture 4: Cash Flow Statement, Cash Flow, Net Income

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Business process flow: role of cash: running out of cash is a serious threat to the continuation of the business, managing cash well can contribute to profitability. Liquidity can be accessed through liquidity ratios such as the current ratio and the quick ratio. Liquidity can also be monitored through the statement of cash flows. The cash flow statement is a classified summary of cash transactions in the year showing how cash is received or spent in: Operating activities - operations related to revenue and expense. Investing activities - purchase or sale of capital assets. Financing activities - changes in debt and in shareholders" equity (other than operations) The cash flow statement reveals the strategic choices the company has made in the period just ended. All other things being equal, net income increases cash. These are expenses deducted in calculating net income, but they do not require any cash flow. Decreasing inventory, receivables etc frees up cash flow.

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