Financial Planner Question: Download Questions PDF
Please explain what a cash flow statement is and how it works?
Answer:
You'll want to start with net income and then proceed line by line through the major adjustments (depreciation, deferred taxes, and working capital changes) required to arrive at cash flow from operations. In your explanation you'll also want to mention the following:
☛ Capital expenditures, purchase of intangible assets, sale of real assets, and purchase/sale of investment securities to find cash flow generated from investing activies.
☛ Issuance/repurchase of dept, sale of equity, and payment of dividends to find cash flow from financing activites.
☛ Adding the cash flows from operating, investing and financing activities your able to come up with the total change in cash.
☛ By taking the cash balance at the beginning of the period and adjusting it for the total change in cash you arrive at the cash balance at the end of the period.
☛ Capital expenditures, purchase of intangible assets, sale of real assets, and purchase/sale of investment securities to find cash flow generated from investing activies.
☛ Issuance/repurchase of dept, sale of equity, and payment of dividends to find cash flow from financing activites.
☛ Adding the cash flows from operating, investing and financing activities your able to come up with the total change in cash.
☛ By taking the cash balance at the beginning of the period and adjusting it for the total change in cash you arrive at the cash balance at the end of the period.
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