Capital structure - Statement of cash flows

13 important questions on Capital structure - Statement of cash flows

What is the difference between a cashflow statement and between the income statement and balance heet?

A cashflow statement shows the actual flows and the other two show accounting figures.

What is the difference between an accounting and a cashflow figure? What is an example of that?

Accountants try to normalise expenses and profits --> depreciation.

Why is a machine depreciated over, for example, ten years?

Because the machine is usable and can, therefore, be depreciated over ten years in a linear manner. Accountants, therefore, account for a cost of 1/10th every year, as the business uses an equivalent of 1/10th every year.
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Out of which sections do the cashflow statements consist?

  1. Cashflow from operating activities
  2. Cashflow from investing activities
  3. Cashflow from financing activities

What does the cashflow from operating activities calculate?

The cash that is generated by its daily business activities, which is the selling of actual products/services minus the costs minus cash movements, affecting the selling activity.

What does the cashflow from investing activities express?

The cash that a business spends on tangible and intangible assets that are necessary to run the business.

What expenditure does the cashflow from investing activities include?

Capital expenditure --> CAPEX

If a business buys a machine, this number is expressed as a negative number in the cashflow from investing activities.

If a business decided to sell assets, this number is expressed as a positive number.

Why is that?

Because cash is leaving the company and because cash is coming into the company.

What is sale-and-lease-back activity?

It's when a company temporarily raises its cashflow from investing activities by selling assets and leasing them back. However, this is not a sustainable and long-term business activity.

What does cashflow from financing activities measure?

The cash that a business moves in its financing activities, predominantly vis-à-vis creditors (such as banks, bond holders, leasing companies).

It includes dividend payments and the issuance or repurchase of a company's own equity and debt securities.

Are loans raised and loan repayments expressed as a positive or negative number?

Loans raised positive as it's cash-in, loan repayments negative as it's cash-out.

In the most recent year, a company reported operating cash flow of negative $24 million, investing cash flow of negative $6 million, and financing cash flow of positive $12 million. The company's monthly burn rate is what?

The burn rate is computed from the sum of operating cash flow and investing cash flow, which in this case is negative $24 million plus negative $6 million, or negative $30 million. The company's monthly burn rate is therefore $30 million/12 = $2.5 million.

If change in accounts receivable is 30, change in inventory is (60), and change in accounts payable is 20, what is the investment in working capital?

(10), so investment of 10 in working capital.

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