Week 9 Discussion Questions

"Cash Flows"  Please respond to the following:

• From the e-Activity, compare and contrast the selected company’s statement of cash flows to its income statement. Suggest at least two (2) items from each statement that investors should analyze when deciding whether or not to purchase the company’s stock. Justify your response.

What does this mean? What is required? We've done all this work to provide financial results with accrual accounting, and now we're asked to strip all that away and analyze the real cash in and out!

First, compare the company's income statement to its statement of cash flows. What are 2 major differences noted? Remember the statement of cash flows is organized by operating, investing, and financing. What are 2 items that would draw your attention as an investor- not necessarily bad ones? Maybe the net income is significantly lower than cash from operations due to large depreciation expense. This might be the case with our start up airline company. The high depreciation, non-cash expense shows lower net income, but the real cash flow may be very strong and healthy. That's one idea of comparison.

After you've described 2 items, discuss the relevance of this information to an investor. Does this information support buying the stock or not? Why? You may already have addressed the why in your discussion of the what.

Remember you don't have to tackle this in one sitting. Do some research, make your observations, come back and read some other posts, revise and add to your posts.