Why Cash Flow Statement?
Shareholder value is now widely accepted as an appropriate standard for performance in US business. The stock market sends a clear message that earning per share is not the most important measure. Now is growth for growth’s sake. What matters is long-term cash generation. (Werner & LeBer, “Managing for Shareholder Value--From Top to Bottom,” Harvard Busines Review, Nov.-Dec. 1989 pp. 52-65.)
Basic Form of Cash Flow Statement
Flow from Operating Activities
Includes:
Flow from Investing Activities
Includes:
Flow from Financing Activities
Includes:
General Theory
Take revenue or expense account (includes cash and accrual)
adjust out accrual amounts
Result is net cash in or out.
Too expensive to classify all cash transactions into operating, financing, investing activities. Cheaper to use accrual systems and adjust out accrual information
Operating Activities
I