Preparing the statement of cash flows
#4 Solvency ( Student Post)
Solvency is how well a company is able to pay off their debts. Solvency is inversely related to debt with respect to the companies assets. For example a large or higher amount of long-term debt than a companies assets means that the company have a lower solvency than if their assets were to be greater than their long term debts.
Source:
Kieso, D.E., Weygandt, J.J., & Warfield, T.D. (2016). Intermediate Accounting (16th ed.). Retrieved from https://phoenix.
#5 Solvency ( Professor Response to Student post)
Solvency is definitely an interesting measurement. What types of conclusions would you come to about a company with a higher solvency rate versus a lower one? Should this be the only factor used in analyzing company data?
#6 Preparing the statement of cash flows ( Student Post)
Preparing involves four steps:
1. Determine the net cash provided by (or used in) operating activities
2. Determine the net cash provided by (or used in) investing and financing activities
3. Determine the change (increase or decrease) in cash during the period
4. Reconcile the change in cash with the beginning and the ending cash balances
Net cash provided by operating activities in the excess of cash receipts over the cash payments.
#7 Usefulness of Statement Cash Flows (Student Post)
here’s a few formulas to help us determine various parts of the statements.
– Financial liquidity uses the current cash debt coverage indicates if company can pay off liabilities from operations given in a year:
Net cash provided by operating activities/ average current liabilities= current cash debt coverage
– Financial Flexibility is the cash debt coverage which indicates the ability to repay liabilities from net cash provided
net cash provided by operating activities/ average total liabilities= cash debt coverage
– Free cash flow is the amount of discretionary cash flow a company has:
net cash provided by operating activities – capital expenditures – cash dividends = free cash flow
#8 Net Cash Provided by Operating Activities (Student Post)
The reading material helped me to better understand how to arrive at the net cash provided from operations. I think the net cash provide from investing and financing activities are more straight forward. Kieson, Weygandt, & Warfield states that net cash provided by operating activities is the excess of cash receipts over cash payments from operating activities. Companies determine this amount by converting net income on an accrual basis to a cash basis (Kieson, Weygandt, & Warfield, 2016). The challenging part for me was knowing whether to add or subtract an increase or decrease in accounts receivables and payables. An increase in accounts receivable is a noncash increase in revenues must be deducted and a decrease is a noncash decrease in revenues so it should be added to net income. An increase in accounts payable is a noncash increase in expenses so it must be added and a decrease is a noncash decrease in expenses so it must be subtracted. The same goes for inventory, prepaid expenses, depreciation: net income should be adjusted for items that do not affect cash.
Solution previewforthe order on preparing the statement of cash flows
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