Helping answering financial statement questions

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Instructions

Instructions for completing this workbook: To complete the CHH Income Statement 10-Q and 10-K worksheet: 1. Locate the CHH 10-Q and 10K income statements by using the links in row 1 above the respective quarter and year. 2. When you arrive at the SEC.gov website, click the 10-Q or 10-K document. 3. Click the Table of Contents link in the upper left corner. 4. Use the links in the Table of Contents to find the information you need to complete the worksheet. 5. Enter or copy the respective data into the worksheet. 6. Solve for the percent (%) change columns by using this example formula: Q3/Q2 - 1. 7. Convert the change columns to percentages. 8. Substitute any question marks with zeros (0). 9. Answer the questions in each worksheet. 10. Highlight significant changes of ±25 percent in the income statement categories of total revenues, total operating expenses, and net income in the Income Statement worksheet. Repeat Steps 1 to 9 above for the Balance Sheet and Statement of Cash Flows worksheets. To complete the Business Performance and Balance Sheet Ratio tabs: 1. Use the data from the respective Income Statement, Balance Sheet, or Statement of Cash Flows worksheets. 2. Substitute the respective formula information with the data. 3. Solve the respective formulas. 4. Answer the questions in both worksheets.

CHH Income Statement

	CHH 2017 10-Q Q3 Report	CHH 2017 10-Q Q2 Report	CHH 2017 10-Q Q1 Report				CHH 2017 10-K Report	CHH 2016 10-K Report
10-Q						10-K
Account name	2017			(Q3/Q2)-1	(Q2/Q1)-1	Account name	2017	2016	(2017/2016)-1
REVENUES	2017 Q3	2017 Q2	2017 Q1	Percent change from Q2 to Q3	Percent change from Q1 to Q2	REVENUES	2017 10-K	2016 10-K2	Percent change from 2016 to 2017
Royalty fees	$ 104,252	$ 92,486	$ 68,989	13%	34%	Royalty fees	$ 345,302	$ 320,547	8%
Initial franchise and relicensing fees	$ 6,403	$ 6,981	$ 5,006	-8%	39%	Initial franchise and relicensing fees	$ 26,262	$ 23,953	10%
Procurement services	$ 8,103	$ 11,068	$ 6,476	-27%	71%	Procurement services	$ 34,661	$ 31,226	11%
Marketing and reservation system	$ 167,763	$ 158,035	$ 109,475	6%	44%	Marketing and reservation system	$ 567,083	$ 525,716	8%
Other	$ 8,567	$ 8,229	$ 7,952	4%	3%	Other	$ 34,048	$ 23,199	47%
Total revenues	$ 295,088	$ 276,799	$ 197,898	7%	40%	Total revenues	$ 1,007,356	$ 924,641	9%
OPERATING EXPENSES						OPERATING EXPENSES
Selling, general and administrative	$ 46,364	$ 38,208	$ 32,846	21%	16%	Selling, general and administrative	$ 163,377	$ 148,728	10%
Depreciation and amortization	$ 3,095	$ 3,050	$ 3,070	1%	-1%	Depreciation and amortization	$ 12,431	$ 11,705	6%
Marketing and reservation system	$ 167,763	$ 158,035	$ 109,475	6%	44%	Marketing and reservation system	$ 567,083	$ 525,716	8%
Total operating expenses	$ 217,222	$ 199,293	$ 145,391	9%	37%	Total operating expenses	$ 742,891	$ 686,149	8%
Gain (loss) on sale of assets, net	$ (32)	$ - 0	$ - 0			Gain (loss) on sale of assets, net	$ (32)	$ 403	-108%
Operating income	$ 77,834	$ 77,506	$ 52,507	0%	48%	Operating income	$ 264,433	$ 238,895	11%
OTHER INCOME AND EXPENSES, NET						OTHER INCOME AND EXPENSES, NET
Interest expense	$ 11,399	$ 11,280	$ 11,205	1%	1%	Interest expense	$ 45,039	$ 44,446	1%
Interest income	$ (1,575)	$ (1,438)	$ (1,264)	10%	14%	Interest income	$ (5,920)	$ (3,535)	67%
Other gains	$ (778)	$ (576)	$ (897)	35%	-36%	Other gains	$ (3,229)	$ (1,504)	115%
Equity in net (income) loss of affiliates	$ 274	$ 859	$ 2,080	-68%	-59%	Equity in net (income) loss of affiliates	$ 4,546	$ (492)	-1024%
Total other income and expenses, net	$ 9,320	$ 10,125	$ 11,124	-8%	-9%	Total other income and expenses, net	$ 40,436	$ 38,915	4%
Income before income taxes	$ 68,514	$ 67,381	$ 41,383	2%	63%	Income before income taxes	$ 223,997	$ 199,980	12%
Income taxes	$ 20,919	$ 22,386	$ 12,639	-7%	77%	Income taxes	$ 109,104	$ 60,609	80%
Net income	$ 47,595	$ 44,995	$ 28,744	6%	57%	Net income	$ 114,893	$ 139,371	-18%

Questions from Choice Hotels: 1. Explain the various sources of revenue recognized by Choice Hotels. You may wish to read the first two pages of the 10-K business section for explanations Most of the hotel is a franchising business, in which 99% of the company's total revenue comes from. The fee and cost structure of our business provides opportunities to improve operating results by increasing the number of franchised hotel rooms and effective royalty rates of our franchise contracts resulting in increased initial and relicensing fee revenue, ongoing royalty fees and procurement services revenues. In addition to these revenues, we also collect marketing and reservation system fees to provide support activities for the franchise system. A franchisor’s revenues are dependent on the number of rooms in its system and the top-line performance of those hotels. he gross room revenues generated by our franchisees and effective royalty rates under our franchise contracts Royalty Fees; Initial franchise and relicensing fees; Procurement services; Marketing and reseration system; Other: 2. We would like to increase our net income next year. Based on your 10-K income statement analysis, which accounts should we look at to achieve this goal and why? Do you expect the new lower federal income tax to increase net income ? Net income would be the income taken after taxes. I would look to reduce operating expenses to increase net income. I do expect that having the lower federal tax income tax will also increase the take home income. 3. Which of these income statement accounts would have the greatest impact on reducing our overall debt and why? Recognize that only cash can be used to reduce debt. I was confused on this question - believe it would be the operating expenses, but found this question to be subjective. The operating income has the closest association to the net cash flow.

https://www.sec.gov/Archives/edgar/data/1046311/000104631117000023/0001046311-17-000023-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000015/0001046311-17-000015-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000030/0001046311-17-000030-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631118000006/0001046311-18-000006-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000006/0001046311-17-000006-index.htm

CHH Balance Sheet

	CHH 2017 10-Q Q3 Report	CHH 2017 10-Q Q2 Report	CHH 2017 10-Q Q1 Report				CHH 2017 10-K Report	CHH 2016 10-K Report
10-Q						10-K
Account name	2017			(Q3/Q2)-1	(Q2/Q1)-1	Account name	2017	2016	(2017/2016)-1
ASSETS	2017 Q3	2017 Q2	2017 Q1	Percent change from Q2 to Q3	Percent change from Q1 to Q2	ASSETS	2017 10-K	2016 10-K	Percent change from 2016 to 2017	Percent change from 2016 to 2018	Percent change from 2016 to 2019	Percent change from 2016 to 2020	Percent change from 2016 to 2021
Current assets						Current assets
Cash and cash equivalents	$ 238,848	$ 197,957	$ 187,472	21%	6%	Cash and cash equivalents	$ 235,336	$ 202,463	16%
Receivables	$ 151,672	$ 146,653	$ 117,878	3%	24%	Receivables	$ 125,452	$ 107,336	17%
Income taxes receivable	$ 19,676	$ 59	$ 446	33249%	-87%	Income taxes receivable	$ - 0	$ 316	-100%
Notes receivable, net of allowance	$ 10,789	$ 10,362	$ 7,650	4%	35%	Notes receivable, net of allowance	$ 13,904	$ 7,873	77%
Other current assets	$ 34,338	$ 25,196	$ 29,416	36%	-14%	Other current assets	$ 28,241	$ 26,885	5%
Total current assets	$ 455,323	$ 380,227	$ 342,862	20%	11%	Total current assets	$ 402,933	$ 344,873	17%
Property and equipment, at cost, net	$ 83,611	$ 83,134	$ 82,701	1%	1%	Property and equipment, at cost, net	$ 83,374	$ 84,061	-1%
Goodwill	$ 80,519	$ 80,036	$ 79,073	1%	1%	Goodwill	$ 80,757	$ 78,905	2%
Intangible assets, net	$ 14,749	$ 15,101	$ 15,301	-2%	-1%	Intangible assets, net	$ 14,672	$ 15,738	-7%
Notes receivable, net of allowances	$ 139,803	$ 132,004	$ 123,878	6%	7%	Notes receivable, net of allowances	$ 147,993	$ 110,608	34%
Investments, employee benefit plans, at fair value	$ 19,749	$ 19,451	$ 18,755	2%	4%	Investments, employee benefit plans, at fair value	$ 20,838	$ 16,975	23%
Investments in unconsolidated entities	$ 131,128	$ 131,722	$ 123,550	-0%	7%	Investments in unconsolidated entities	$ 134,226	$ 94,839	42%
Deferred income taxes	$ 7,835	$ 54,030	$ 54,592	-85%	-1%	Deferred income taxes	$ 13,335	$ 52,812	-75%
Other assets	$ 28,475	$ 52,268	$ 63,420	-46%	-18%	Other assets	$ 29,479	$ 53,657	-45%
Total assets	$ 961,192	$ 947,973	$ 904,132	1%	5%	Total assets	$ 927,607	$ 852,468	9%
LIABILITIES AND SHAREHOLDERS EQUITY	2017 Q3	2017 Q2	2017 Q1	Percent change Q2 to Q3	Percent change Q1 to Q2	LIABILITIES AND SHAREHOLDERS EQUITY	2017 10-K	2016 10-K	Percent change
Current liabilities						Current liabilities
Accounts payable	$ 68,261	$ 67,736	$ 59,090	1%	15%	Accounts payable	$ 63,540	$ 48,071	32%
Accrued expenses and other current liabilities	$ 66,515	$ 65,837	$ 54,010	1%	22%	Accrued expenses and other current liabilities	$ 85,838	$ 80,388	7%
Deferred revenue	$ 136,956	$ 135,350	$ 145,833	1%	-7%	Deferred revenue	$ 141,111	$ 133,218	6%
Current portion of long-term debt	$ 1,302	$ 1,302	$ 1,225	0%	6%	Current portion of long-term debt	$ 1,232	$ 1,195	3%
Income taxes payable	$ - 0	$ 6,136	$ 13,923	-100%	-56%	Income taxes payable	$ 2,776	$ 796	249%
Total current liabilities	$ 273,034	$ 276,361	$ 274,081	-1%	1%	Total current liabilities	$ 294,497	$ 263,668	12%
Long-term debt	$ 800,001	$ 862,965	$ 862,389	-7%	0%	Long-term debt	$ 725,292	$ 839,409	-14%
Deferred compensation and retirement plan obligations	$ 24,355	$ 23,927	$ 23,044	2%	4%	Deferred compensation and retirement plan obligations	$ 25,566	$ 21,595	18%
Deferred income taxes	$ - 0	$ - 0	$ 139			Income taxes payable	$ 29,041	$ - 0
Other liabilities	$ 64,182	$ 37,337	$ 36,966	72%	1%	Deferred income taxes	$ 39	$ 292	-87%
Total liabilities	$ 1,161,572	$ 1,200,590	$ 1,196,619	-3%	0%	Other liabilities	$ 65,274	$ 38,853	68%
						Total liabilities	$ 1,139,709	$ 1,163,817	-2%
Commitments and Contingencies
Common stock	$ 951	$ 951	$ 951	0%	0%	Commitments and Contingencies
Additional paid-in-capital	$ 178,231	$ 164,812	$ 160,719	8%	3%	Common stock	$ 951	$ 951	0%
Accumulated other comprehensive loss	$ (5,034)	$ (6,100)	$ (7,739)	-17%	-21%	Additional paid-in-capital	$ 182,448	$ 159,045	15%
Treasury stock	$ (1,066,915)	$ (1,069,241)	$ (1,070,516)	-0%	-0%	Accumulated other comprehensive loss	$ (4,699)	$ (8,522)	-45%
Retained earnings	$ 692,387	$ 656,961	$ 624,098	5%	5%	Treasury stock	$ (1,064,573)	$ (1,070,383)	-1%
Total shareholders equity	$ (200,380)	$ (252,617)	$ (292,487)	-21%	-14%	Retained earnings	$ 673,771	$ 607,560	11%
						Total shareholders equity	$ (212,102)	$ (311,349)	-32%
Total liabilities and shareholders equity	$ 961,192	$ 947,973	$ 904,132	1%	5%
						Total liabilities and shareholders equity	$ 927,607	$ 852,468	9%

Questions from Choice Hotels: 1. What portion of assets are finance with debt and what portion with equity? What difference does it make? Does it matter that Liabilities are higher than Assets and equity is negative? Would this be the debt to asset and equity ratios? I understand that there is a difference, if liabilities are higher because of liquidity. When assets are financed by /with debt ROE tends t be higher and more enticing to investors. It looks like 100% of their assets are financed by debt 2. Based on your estimation, do we have enough cash and cash equivalents to pay off our current liabilities? Would you advise eliminating the loyalty program or is it better to keep some liabilities? If we have more than enough cash and cash equivalents, what percentage of long-term debts, if any, can we pay? Based on analysis, it does not appear they will have enough cash/cash equivalents to cover their liabilities. 3. Which balance sheet account(s) on our 10-K report, in your estimation, should we consider to reduce our long-term debt, and why? Management has chosen to make investments in other entities such as loans to hotel owners, and funding employee benefit plans. Management considers these to be wise and necessary for growth. Cash Accounts and investment account could also be considered for long term borrowings. Just as with cash, long-term debt should be carefully scrutinized. A company using long-term debt properly can generate value for shareholders. However, the amount of long-term debt on a company’s books should be reasonable. Recommend considering liquidating the note receivable to pay down debt

https://www.sec.gov/Archives/edgar/data/1046311/000104631117000030/0001046311-17-000030-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000023/0001046311-17-000023-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000015/0001046311-17-000015-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631118000006/0001046311-18-000006-index.htm https://www.sec.gov/Archives/edgar/data/1046311/000104631117000006/0001046311-17-000006-index.htm

CHH Cash Flow

	CHH 2017 10-Q Q3 Report	CHH 2017 10-Q Q2 Report	CHH 2017 10-Q Q1 Report				CHH 2017 10-K Report	CHH 2016 10-K Report
						10-K
Account name	2017			(Q3/Q2)-1	(Q2/Q1)-1	Account name	2017	2016	(2017/2016)-1
CASH FLOWS FROM OPERATING ACTIVITIES	2017 Q3	2017 Q2	2017 Q1	Percent change from Q2 to Q3	Percent change from Q1 to Q2	CASH FLOWS FROM OPERATING ACTIVITIES	2017 10-K	2016 10-K	Percent change from 2016 to 2017
Net income	$ 121,334	$ 73,739	$ 28,744	65%	157%	Net income	$ 114,893	$ 139,371	-18%
Adjustments to reconcile net income to net cash provided by operating activities						Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	$ 9,215	$ 6,120	$ 3,070	51%	99%	Depreciation and amortization	$ 12,431	$ 11,705	6%
Loss (gain) on disposal of assets	$ 32	$ 4	$ - 0	700%		Loss (gain) on disposal of assets	$ 52	$ (346)	-115%
Provision for bad debts, net	$ 1,796	$ 916	$ 561	96%	63%	Provision for bad debts, net	$ 3,440	$ 2,151	60%
Non-cash stock compensation and other charges	$ 20,369	$ 6,809	$ 3,681	199%	85%	Non-cash stock compensation and other charges	$ 23,340	$ 15,458	51%
Non-cash interest and other (income) loss	$ (451)	$ (274)	$ (301)	65%	-9%	Non-cash interest and other (income) loss	$ (772)	$ 1,059	-173%
Deferred income taxes	$ 44,777	$ (1,446)	$ (1,900)	-3197%	-24%	Deferred income taxes	$ 39,320	$ (10,542)	-473%
Equity in net losses from unconsolidated joint ventures, less distributions received	$ 4,278	$ 3,543	$ 2,386	21%	48%	Equity in net losses from unconsolidated joint ventures, less distributions received	$ 6,579	$ 1,025	542%
Changes in assets and liabilities, net of acquisition						Changes in assets and liabilities, net of acquisition
Receivables	$ (47,520)	$ (40,673)	$ (11,365)	17%	258%	Receivables	$ (23,126)	$ (21,919)	6%
Advances to/from marketing and reservation system activities, net	$ 43,697	$ 17,407	$ (216)	151%	-8159%	Advances to/from marketing and reservation system activities, net	$ 51,722	$ (21,449)	-341%
Forgivable notes receivable, net	$ (21,443)	$ (14,108)	$ (4,483)	52%	215%	Forgivable notes receivable, net	$ (30,638)	$ (17,410)	76%
Accounts payable	$ 19,679	$ 18,955	$ 9,203	4%	106%	Accounts payable	$ 12,455	$ (13,689)	-191%
Accrued expenses and other current liabilities	$ (11,540)	$ (11,286)	$ (25,048)	2%	-55%	Accrued expenses and other current liabilities	$ 7,176	$ 5,225	37%
Income taxes payable/receivable	$ (20,114)	$ 5,629	$ 13,012	-457%	-57%	Income taxes payable/receivable	$ 31,383	$ 5,775	443%
Deferred revenue	$ 3,650	$ 2,061	$ 12,579	77%	-84%	Deferred revenue	$ 7,797	$ 61,646	-87%
Other assets	$ (1,162)	$ (1,764)	$ (4,958)	-34%	-64%	Other assets	$ 1,521	$ (8,703)	-117%
Other liabilities	$ (1,578)	$ (1,524)	$ (751)	4%	103%	Other liabilities	$ (199)	$ 2,678	-107%
Net cash provided by operating activities	$ 165,019	$ 64,108	$ 24,214	157%	165%	Net cash provided by operating activities	$ 257,374	$ 152,035	69%
CASH FLOWS FROM INVESTING ACTIVITIES						CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment	$ (17,514)	$ (10,687)	$ (4,718)	64%	127%	Investment in property and equipment	$ (23,437)	$ (25,191)	-7%
Investment in intangible assets	$ (2,376)	$ (2,228)	$ (2,088)	7%	7%	Investment in intangible assets	$ (2,517)	$ (2,580)	-2%
Proceeds from sales of assets	$ - 0	$ - 0	$ - 0			Proceeds from sales of assets	$ 1,000	$ 11,462	-91%
Business acquisition, net of cash acquired	$ - 0	$ - 0	$ - 0			Acquisitions of real estate	$ - 0	$ (28,583)	-100%
Contributions to equity method investments	$ (44,876)	$ (42,127)	$ (31,610)	7%	33%	Business acquisition, net of cash acquired	$ - 0	$ (1,341)	-100%
Distributions from equity method investments	$ 4,307	$ 1,696	$ 510	154%	233%	Contributions to equity method investments	$ (50,554)	$ (34,661)	46%
Purchases of investments, employee benefit plans	$ (2,140)	$ (1,736)	$ (1,424)	23%	22%	Distributions from equity method investments	$ 4,569	$ 3,700	23%
Proceeds from sales of investments, employee benefit plans	$ 2,150	$ 2,094	$ 843	3%	148%	Purchases of investments, employee benefit plans	$ (2,447)	$ (1,661)	47%
Issuance of mezzanine and other notes receivable	$ (18,565)	$ (14,977)	$ (9,863)	24%	52%	Proceeds from sales of investments, employee benefit plans	$ 2,245	$ 1,911	17%
Collections of mezzanine and other notes receivable	$ 630	$ 552	$ 552	14%	0%	Issuance of mezzanine and other notes receivable	$ (19,738)	$ (32,604)	-39%
Acquisitions of real estate	$ - 0	$ - 0	$ - 0			Collections of mezzanine and other notes receivable	$ 655	$ 11,070	-94%
Other items, net	$ 109	$ 110	$ (4)	-1%	-2850%	Other items, net	$ 109	$ 11	891%
Net cash used by investing activities	$ (78,275)	$ (67,303)	$ (47,832)	16%	41%	Net cash used by investing activities	$ (90,115)	$ (98,467)	-8%
CASH FLOWS FROM FINANCING ACTIVITIES						CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayments) borrowings pursuant to revolving credit facilities	$ (39,974)	$ 23,200	$ 22,800	-272%	2%	Proceeds from the issuance of long-term debt	$ - 0	$ - 0
Principal payments on long-term debt	$ (484)	$ (309)	$ (153)	57%	102%	Net (repayments) borrowings pursuant to revolving credit facilities	$ (115,003)	$ 25,795	-546%
Purchases of treasury stock	$ (8,887)	$ (7,414)	$ (7,271)	20%	2%	Principal payments on long-term debt	$ (660)	$ (988)	-33%
Dividends paid	$ (36,483)	$ (24,333)	$ (12,139)	50%	100%	Proceeds from other debt agreements	$ - 0	$ 550	-100%
Debt issuance costs	$ - 0	$ - 0	$ - 0			Debt issuance costs	$ - 0	$ (284)	-100%
Proceeds from transfer of interest in notes receivable	$ 24,237	$ - 0	$ - 0			Purchases of treasury stock	$ (9,807)	$ (35,926)	-73%
Proceeds from exercise of stock options	$ 9,799	$ 6,590	$ 4,963	49%	33%	Dividends paid	$ (48,651)	$ (46,182)	5%
Net cash used by financing activities	$ (51,792)	$ (2,266)	$ 8,200	2186%	-128%	Proceeds from transfer of interest in notes receivable	$ 24,237	$ - 0
Net change in cash and cash equivalents	$ 34,952	$ (5,461)	$ (15,418)	-740%	-65%	Proceeds from exercise of stock options	$ 14,107	$ 12,951	9%
Effect of foreign exchange rate changes on cash and cash equivalents	$ 1,433	$ 955	$ 427	50%	124%	Net cash used by financing activities	$ (135,777)	$ (44,084)	208%
Cash and cash equivalents at beginning of period	$ 202,463	$ 202,463	$ 202,463	0%	0%	Net change in cash and cash equivalents	$ 31,482	$ 9,484	232%
Cash and cash equivalents at end of period	$ 238,848	$ 197,957	$ 187,472	21%	6%	Effect of foreign exchange rate changes on cash and cash equivalents	$ 1,391	$ (462)	-401%
Supplemental disclosure of cash flow information:						Cash and cash equivalents at beginning of period	$ 202,463	$ 193,441	5%
Cash payments during the period for:						Cash and cash equivalents at end of period	$ 235,336	$ 202,463	16%
Income taxes, net of refunds	$ 31,254	$ 30,813	$ 1,454	1%	2019%
Interest, net of capitalized interest	$ 41,119	$ 21,206	$ 19,874	94%	7%
Non-cash investing and financing activities:
Dividends declared but not paid	$ 12,167	$ 12,133	$ 12,195	0%	-1%
Investment in property and equipment acquired in accounts payable	$ 758	$ 895	$ 724	-15%	24%
Non-cash sale of investment of unconsolidated joint venture	$ - 0	$ - 0	$ - 0
we are trying to improve our operations by increasing cash flow in one of the three activities: (1) operating activities, (2) investing activities, or (3) financing activities, it has to from operating activities as cash flow from operating activities tells us how good are company operations.				ERROR:#DIV/0!	ERROR:#DIV/0!

Questions from Choice Hotels: 1. Should the company try to reduce debt or to grow rapidly to return to a positive stock holder equity? We are trying to reduce our debt. How would you recommend modifying the cash flow (increase or decrease) in each of the three activities: (1) operating activities, (2) investing activities, and (3) financing activities? Explain. Remember that positive numbers mean cash is flowing in and negative numbers mean that cash is flowing out Since we are tempting to reduce debt, operating activities should Increase (debt will decrease), cash flow from investing activities should not change, while the cash flow from financing activities should reduce as we are trying to repay debt which will result in lowering of cash flow from financial activities 2. We are trying to improve our operations by increasing cash flow in one of the three activities: (1) operating activities, (2) investing activities, or (3) financing activities. Which one of the three activities would you recommend, and why? When tempting to improve our operations by increasing cash flow in one of the three activities: operating activities, investing activities, orfinancing activities, it has to from operating activities as cash flow from operating activities tells us how good are company operations. 3. Is there sufficient operating cash flow to sustain the capital expenditures and distribute dividends to shareholders? Yes, 17,514/9,215 = 1.90. With the ratio being higher than 1.0 to cover inflation in the replacement costs.