Week 7 Discussion: The Financials 1

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    Week 7 Discussion: The Financials
    Due Week 7 and worth 80 points
    Important Notes
    Use the NAB Company Portfolio (see: Course Required Files in Week 1) for reference. Provide the following information below.
    The statement of cash flows is very important to investors because it shows how much actual cash a company has generated.Wiley & Sons state
    The Three Elements of the Statement of Cash FlowsBecause companies can generate and use cash in several different ways the statement of cash flows is separated into three sections: cash flows from operating activities from investing activities and from financing activities.
    The cash flows from operating activitiessection shows how much cash the company generated from its core business as opposed to peripheral activities such as investing or borrowing. Investors should look closely at how much cash a firm generates from its operating activities because it paints the best picture of how well the business is producing cash that will ultimately benefit shareholders.
    The cash flows from investing activitiessection shows the amount of cash firms spent on investments. Investments are usually classified as either capital expenditures–money spent on items such as new equipment or anything else needed to keep the business running–or monetary investments such as the purchase or sale of money market funds.
    The cash flows from financing activitiessection includes any activities involved in transactions with the company’s owners or debtors. For example cash proceeds from new debt or dividends paid to investors would be found in this section.
    Free cash flow represents the amount of excess cash a company generated which can be used to enrich shareholders or invest in new opportunities for the business without hurting the existing operations; thus it’s considered free(Wiley & Sons 2004 2005 course 107).
    Cash from Operations – Capital Expenditures = Free Cash Flow
    Income statement. The most important financial statement for the majority of users is likely to be the income statement since it reveals the ability of a business to generate a profit. Also the information listed on the income statement is mostly in relatively current dollars and so represents a reasonable degree of accuracy.
    Balance sheet. The balance sheet is likely to be ranked third since it does not reveal the results of operations and some of the numbers listed in it may be based on historical costs which renders the report less informative.
    Statement of cash flows. A possible candidate for most important financial statement is the statement of cash flows because it focuses solely on changes in cash inflows and outflows.
    Bragg S. (2014 March 15). Which financial statement if the most important? Retrieved from http://www.accountingtools.com/questions-and-answers/which-financial-statement-is-the-most-important.html
    Wiley & Sons (2004 2005). Introductions to Financial Statements. Retrieved from http://news.morningstar.com/classroom2/course.asp?docId=142913&page=1&CN=sample

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