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Analyzing an Agribusiness Statement of Cash Flows

Daryl Burckel Michael P. Watters Zoel W. Daughtrey

Recentty, the Farm Financiat Standards Task Force (FFSTF) released its recommendations regard- ing preferable external financial reporting practices for agricultural entities. The FFSTF recom- mended that farm financial statements should basically follow the format of financial statements prepared in accordance with generally accepted accounting principles. Specifically, with respect to the preparation of a statement of cash flows, the FFSTF recommended that the framework estab- lished by Statement of Financial Accounting Standard (SFAS) NO. 95 should be adhered to by agricultural entities. This article explains and discusses the requirements of SFAS No. 95 as it pertains to agricultural entities and provides a framework for analyzing a typical agribusiness SCF.

Recently, the Farm Financial Standards Task Force (FFSTF) released its recom- mendations regarding preferable external financial reporting practices for agri- cultural entities.^ The FFSTF recommended that farm financial statements should basically follow the format of financial statements prepared in accordance with generally accepted accounting principles (GAAP). Specifically, with respect to the preparation of a statement of cash flows (SCF), the FFSTF recommended that the framework established by Statement of Financial Accounting Standard (SFAS) No. 952 should be adhered to by agricultural entities.^ This article explains and discusses the requirements of SFAS No. 95 as it pertains to agri-

Daryl Burekel is Assistant Professor in the School of Aeeountaney, Mississippi State University.

Michael P. Watters is Assistant Professor in the Department of Aceounting & Business Computer Systems, New Mexico State University.

Zoel W. Daughtrey is Professor in the School of Accountancy, Mississippi State University.

Agribusiness, Vol. 7, No. 4, 389-400 (1991) © 1991 by John Wiley & Sons, Inc. CCC 0742-4477/91/040389-12804.00

390 BURCKEL, WATTERS, AND DAUGHTREY

cultural entities and provides a framework for analyzing a typical agribusiness SCF.

THE STATEMENT OF CASH FLOWS

Financial reporting should provide information to help users in assessing the nature and extent of current operating period cash receipts and payments and the nature, extent, and uncertainty of prospective cash receipts and payments.'* The SCF provides the information necessary to analyze an agricultural operation's current operating period cash Rows. Furthermore, when used in conjunction with an income statement and balance sheet, information may be gained about prospec- tive cash flows.

The SCF provides useful information about activities to (a) generate cash through operations to repay debt and distribute funds to equity holders, (b) secure financing, with both debt and equity capital, and (c) create investments in order to maintain or expand operating capacity, tnformation about current cash receipts and payments may aid in assessing factors such as liquidity, solvency, financial flexibility, profitability, and risk exposure. The SCF facilitates the process of making such assessments by providing a detailed summary of the sources and uses of cash for the accounting period.

The SCF enhances information from the balance sheet, income statement, and retained earnings statement by providing additional information not presented by the latter statements. The balance sheet, income statement, and retained earn- ings statement present only fragments of a limited picture of the financing and investing activities of an enterprise during a period. For example, comparative balance sheets may point to changes in the balances of assets and liabilities and footnotes may describe significant acquisitions and disposals of assets and lia- bilities; the income statement gives some hint of cash and noncash resources generated by operations; finally, the retained earnings statement discloses the changes in equity capital. However, none of these statements presents a detailed summary of all of the cash operating, financing, and investing activities of an entity during the period. The SCF specifically identifies where cash came from during the period, how cash was used during the period, and what the change in the balance of cash was for the period.

A caveat: although the SCF provides information about current cash receipts and payments, alone it provides only limited information useful in assessing the prospects for future cash flows. Because the SCF does not present interperiod relationships, current-period cash receipts arising from activities of earlier peri- ods and current-period cash payments intended or expected to effect future cash receipts are combined with cash receipts and payments related to the current operating period. An analysis based upon a SCF used in conjunction with an income statement and balance sheet will usually provide a better basis for assessing the prospects for future cash flows than will an analysis of a SCF alone. Thus, a complete analysis of the SCF is interrelated with the analysis of a complete set of coordinated accrual-basis financial statements.

OPERATING SECTION

SFAS No. 95 requires that a SCF classify cash payments and receipts into three major categories: operating, investing, and financing. The purpose of the operat-

CASH FLOW 391

ing section of the SCF is to present the cash flows that were generated by the major, ongoing operations of the agricultural enterprise. Operations can be viewed in a net sense. It is the excess of revenues after expenses on a cash basis. In this content, net income becomes a source of cash for distribution or reinvest- ment in the business. The operating section can be presented on either a direct or indirect basis.

Under the direct method, the principal components of this section are operat- ing cash receipts and payments, such as cash received for the sale of livestock, poultry and crops, and cash paid to suppliers and employees. The sum of these cash transactions is net cash flow from operating activities. Table I illustrates the operating section under the direct method.

The main advantage of the direct method is that it shows operating cash receipts and payments. Knowledge of the specific sources of operating cash receipts and the purposes for which operating cash payments were made in past periods may be useful in estimating future operating cash flows (See Table I, Schedules 1 and 2). The relative amounts of major classes of cash revenues and cash expenses and their relationship to other items in the financial statements are presumed to be more useful than information only about their arithmetic sum, net cash flow from operating activities, in assessing enterprise performance.^ Al- though the account classifications presented in the SCF may parallel those presented in the income statement, the SCF presents cash inflows and outflows related to each account classification while the income statement presents amounts of income, expense, gains, and losses based on accrual accounting

Table I. An Example of the Operating Section of a Statement of Cash Flows: Direct Method.

Cash Flows from Operating Activities Cash Received from Customers (from Schedule 1) $223,206 Cash Paid to Suppliers and Employees (from Schedule 2) (82,834) Income Taxes Paid (25,620) Interest Paid (23,680) Interest Received 2,100 Net Cash Provided by Operating Activities $ 93,172

Schedule 1: Cash Received from Customers during the Year Livestock and Poultry $110,000 49% Crops and Feed 82,145 37% Nonfarm Receipts 13,033 6% Hedging Transactions 6,640 3% Breeding Stock (from Normal Culling) 6,290 3% Government Payments and Patronage Dividends 5,098 2% Cash Received from Customers during the Year $223,206 100%

Schedule 2: Cash Paid to Suppliers and Employees during the Year General and Administrative $33,134 40% Family Withdrawals (Salaries and Wages) 24,866 30% Peed 20,780 25% Livestock and Poultry Purchased 2,904 4% Employee Compensation 1,150 1% Cash Paid to Suppliers and Employees during the Year 182,834 100%

392 BURCKEL, WATTERS, AND DAUGHTREY

principles. Therefore, an assessment may be made of the amount of cash inflow generated during the period relative to the amount of accrual-basis income that was earned. Similarly, a comparison of the amount of cash outflow with accrual- basis expense for the period may be made. For instance, the major sources of cash receipts for the farm operation in Schedule 1 were from livestock and poultry sales (49%) and crops and feed sales (37%). These two products resulted in 86% of total cash received from customers during the year. Schedule 2 identifles the major operating cash disbursements: general and administi-ative expenses and family withdrawals account for 40% and 30%, respectively, of the total cash paid during the year. It could be argued that a portion of the amount presented as family withdrawals should be classified as dividends or returns to equity capital and presented in the financing section of the SCF. However, family withdrawals serves as a proxy for unpaid labor and management by the owner and other family members.*' Cash payments for feed also constitute a relatively signif- icant portion (25%) of total cash expenditures. The owner and his family inem- bers provide almost all of the farm labor: only 1% of the $82,834 in cash disbursements is for employee compensation. Comparison of these major operat- ing cash outflows with the corresponding classifications of expenses presented in the income statement should yield additional information about the enterprise's operating performance and ability to generate sufficient cash flow to maintain operations. Again, a comparison of the amounts of major classes of operating cash receipts and payments with one another and with the corresponding amounts of accrual-basis income and expense presented in the income statement presumably would be useful in assessing an enterprise's ability to generate suffi- cient cash from operating activities to pay its debt, to reinvest in its operations, and to make distributions to its owners.

Commercial lenders are most likely to favor the direct method because the amounts of operating cash receipts and payments are particularly important in assessing an enterprise's external borrowing needs and its ability to repay borrow- ings.'^ Further, lenders are generally more concerned with fluctuations in net cash flow from operating activities than with fluctuations in net income. The direct method is more consistent with the objective of a SCF—to provide infor- mation about cash receipts and cash payments, than the indirect method, which does not report operating cash receipts and payments. However, because of the limitations of their accounting systems, some farmers may find it difficult or impractical to identify and classify operating cash flows in accordance with the direct method. In such circumstances, the indirect method may be desirable.

INDIRECT METHOD

The indirect method starts with accrual-basis net income and adjusts it for noncash revenue and expense transactions reflected in net income and cash transactions not reflected in net income in the current period to reconcile it to net cash flow from operating activities. The indirect method does not disclose operat- ing cash receipts and payments. Table II illustrates the indirect method.

The principal advantage of the indirect method is that it focuses on the difference between net income and net cash flow from operating activities. The primary purpose of financial reporting is providing information about a firm's

CASH FLOW 393

Table II. An Example of the Operating Section of a Statement of Cash Flows: Indirect Method.

Cash Flows from Operating Activities Net Income 864,747 Adjustments to Reconcile Net Income to Net Cash Provided by

Operating Activities Depreciation and Amortization 35,359 Gain on Sale of Truck and Machinery (11,800) Loss on Sale of Breeding Stock 4,000 Decrease in Accounts Receivable 2,400 Decrease in Accounts Payable and Accrued Expenses (1,534)

Net Cash Provided by Operating Activities 893,172

performance by presenting measures of earnings and its components. Investors, creditors, and others who are concerned with assessing the prospects for an enterprise's net cash inflows are especially interested in such information. Their interest in an enterprise's future cash flows leads primarily to a focus on informa- tion about its earnings rather than information directly about its cash flows. Financial statements that show only cash receipts and payments during a short period, such as a year, cannot adequately indicate whether or not an enterprise's performance is successful.

Some investors and creditors may assess future cash flows in part by first estimating future income based in part on reports of past income and then converting those future income estimates to estimates of future cash flows by allowing for leads and lags between the receipt and payment of cash and the recognition of income. Information about similar leads and lags in the past are likely to be helpful in that process. Identifying differences between income items and related cash flows also can assist investors and creditors who want to identify the differences between enterprises in the measurement and recognition of non- cash items that affect income.

It should be noted that the direct method for the presentation of the SCF provides more information concerning cash receipts and payments than the indi- rect method. Thus, a SCF prepared according to the direct method should lead to better financial analysis. Further, entities using the direct method and adhering to GAAP must provide, in a separate schedule, a reconciliation of net income and net cash flow from operating activities.^ Therefore, if the direct method is used, information on both the direct and indirect operating sections will be provided. If the indirect method is used, the direct operating section is not an additional requirement. However, a SCF prepared using the indirect method may yield rough approximations of operating cash receipts and payments at a mini- mum level of detail. Entities using the indirect method of reporting net cash flow from operations must disclose separately amounts of interest and income taxes paid and changes in inventory, receivables, and payables. Thus, within the total amount of operating receivables, information on receivables from customers for the delivery of goods or services may be available separately from those receiv- ables for interest and dividends. Therefore, it may be possible to distinguish

394 BURCKEL, WATTERS, AND DAUGHTREY

between cash collected from customers and interest and dividends received. The same procedure may be used to determine a rough approximation of cash paid to suppliers and employees. Within the total amount of operating payables, paya- bles to suppliers and employees may be derived by deducting cash paid for interest and taxes. Determining operating cash receipts and payments in more detail may involve significant incremental costs that cannot be justified by the additional benefits of such an analysis.

INVESTING AND FINANCING SECTIONS

If the indirect method is used, net changes in current assets are recorded in the operating section. Presumably, this provides sufficient information for analyzing major changes in these account balances. However, for noncurrent or fixed asset accounts (and intermediate asset accounts, if such a category is used), with the exception of breeding livestock, gross increases or decreases resulting from cash outflows or inflows are recorded in the investing section of the SCF in order to show the specific investment or disinvestment pattern of the enterprise.

The procedure is paralleled for liabilities with an attempt to analyze borrowing as an inflow of cash. Again, if the indirect method is used, only net increases or decreases in current liability accounts are shown in the operating section while gross amounts of cash flows from new borrowings and loan payments are recorded in the financing section of the SCF for intermediate and long-term liabilities.

An example of the investing and financing sections of a SCF is shown in Table III.

Table III. An Example of the Investing and Financing Sections of a Statement of Cash Flows.

Net Cash Provided by Operating Activities (from Table I) $93,172

Cash Flows from Investing Activities Proceeds from Sale of Breeding Stock $19,500 Proceeds from Sale of Machinery 11,000 Proceeds from Sale of Farm Truck 800 Payment for Purchase of Machinery (47,500) Payment for Purchase of Retirement Account (1,950) Payment for Purchase of Securities (1,060) Net Cash Used in Investing Activities Activities (19,210)

Cash Flows from Financing Activities Payment of Short-Term Note (41,000) Payment of Long-Term Note (29,970) Payment of Mortgage (13,000)

Net Cash Used in Financing Activities (83,970) Net Decrease in Cash and Cash Equivalents (10,008) Cash and Cash Equivalents at Beginning of Year 33,000 Cash and Cash Equivalents at End of Year 822,992

CASH FLOW 395

CLASSIFICATION OF CASH FLOWS

To assure comparability and relevance of information, SFAS No. 95 carefully defines three major sections of cash flows included on the required SCF and provides guidance regarding the proper classification of transactions and events within each section. It is critically important to classify cash inflows and outflows in a manner that yields relevant information. For instance, family withdrawals (or a portion thereof) could be looked upon as returns on equity capital to owners of the operation and therefore classified as a financing cash outflow. Financing activities include all investments by and distributions to owners of the firm. However, in most cases, family withdrawals should not be classified in the financing section because the financial data will be more meaningful when family withdrawals are classified in the operating section. The operating section is a more logiceil position because the family withdrawals are actually a rough esti- mate of compensation for the farm owners' labor rather than a capital distribu- tion, if no direct wages had been paid to the family members.^ Further, the FASB has specified that items not defined as investing or financing activities should be included as operating activities. ^̂ Additionally, classification of a portion of total family withdrawals as returns to equity capital (an investing activity) may likely be based on a necessarily arbitrary allocation scheme while classification of the total amount of family withdrawals as an operating cash outflow is straightfor- ward. Such classification should enhance reporting consistency and allow for a better assessment of whether farm operations are adequate to cover living ex- penses. When operations are not covering living expenses, these expenses are being subsidized by either an investing or financing activity. This situation would indicate the eventual demise of the operation if such conditions persist.

Similarly, sales of breeding stock that are not the result of normal culling could be misclassified as an operating activity. Normal culling includes activities un- dertaken on a regular basis to ensure a desired level of productivity from breed- ing stock. Usually, normal culling is based on the age of an animal and its productivity record. For example, in order to maintain a high level of production, an operator may establish a policy of culling a cow from breeding stock after she reaches seven years of age or after she bears her fourth calf, whichever comes first. If such is the case, the sale of healthy two-year-old heifers from breeding stock represents the disinvestment of noncurrent assets which will reduce the earnings ability of the operation in future periods. If cash receipts from the sale of breeding livestock in excess of normal culling is classified as an operat- ing activity, an overstatement of operating performance is presented while a dis- investment in noncurrent assets is omitted from the investing section of the SCF. Therefore, the proper classification of cash receipts and payments will en- hance the analysis of a SCF by providing undistorted decision-useful informa- tion pertaining to the operating, investing, and financing activities of the farm business.

ANALYZING AN SCF

The SCF is a tool management, investors, and creditors may use. Management may use the SCF to help improve earnings and growth. Realizing that earnings

396 BURCKEL, WATTERS, AND DAUGHTREY

increase as their clients grow, expand, and prosper, investors and creditors are especially concerned about debt repayment. Two fundamental uses of the SCF are possible: (a) analysis of past performance and (b) analysis of projections for the future. While a number of possible approaches exists, ̂ ^ the method present- ed in this article utilizes ratio analysis and hypothetical modeling in analyzing the SCF presented earlier in Tables I, II, and III.

In analyzing past performance, the primary goal is to provide additional infor- mation for management, investors, and creditors^ Detailed summaries will pro- vide insight into operating activities and investing and financial decisions made by management. The analysis of past performance evaluates the sources of cash, the uses of cash, and growth and expansion of the enterprise.

Analysis of Past Performance: Cash Inflows

Net cash flow from operations is a key variable in determining if a business is prospering. Operating cash flows are generated from the major, ongoing opera- tions of the business. If these cash flows are small compared to the total amount of resources employed by the enterprise, then the operations of the business may not be providing enough cash for long-term success. For example, the ratio of operating cash flows to average total assets may provide some limited information to investors and creditors wishing to make interfirm comparisons aimed at ascer- taining firm profitability. Small operating cash flows are expected in the start-up phase of a new business, but for a growing or mature business, the cash flows must be sufficient to support the activities of the farm or ranch. A portion of operating cash flows constitutes growth funds. Obligations such as debt repay- ments and equity capital repayments also must be met with operating cash flows. In evaluating operating cash flows, disinvestment may result in reduced operat- ing capacity if current working assets are being sold and not replaced. However, disinvestment is normal when current inventory is being marketed.

Another inflow of cash may be identified in the investing section. These cash flows generally result from the sale of noncurrent assets. Such a sale may occur when an agricultural operation is over capitalized or replacing such assets. The nature and proportion of these cash flow sources must be scrutinized carefully. The sale of excess equipment, nonproductive real estate, or low-yielding se- curities may be indicative of judicious management. However, the solvency and liquidity of a business may be questionable where the sale of long-term assets used in the production of revenue (e.g., property, plant, and equipment) is necessary in order to meet current cash needs.

A final source of cash is from borrowing. Information confirming this source of cash is found in the financing section. Not only is the amount of new debt important, but also whether such debt is short-term or long-term. For example, if the duration of all new borrowings is short-term, such debt will require a new cash inflow in the following year. Financing information considered along with the operating cash flows will allow an assessment of the entity's ability to meet these payments. If all new borrowings are long-term in nature, repayment re- quirements the following year may be relatively low, reducing the current de- mand for cash.

CASH FLOW 397

Analysis of Past Performance: Cash Outflows

The next analysis deals with the uses of cash. Dividends and distributions directly affect enterprise growth and are subtracted in the financing section. Investment decisions are summarized by showing gross increases in noncurrent assets. Examples of investing activities include the purchase of property, plant, or equipment. This information indicates the growth direction of the business during the past year. Thus, the net cash flows from investing activities will be the difference between aggregate investment and disinvestment.

Debt repayment is the last major use of cash. Actual payments on noncurrent debts are summarized and can be compared to payments which had been pro- jected. These debt payments can also be compared to growth funds available. If the net cash flow from financing activities is negative, it possibly means that more cash is being used for debt servicing than is being acquired from new borrowings. The negative net cash flow from financing must be compared to the net cash flow from operations in order to determine if there is sufficient cash on hand to meet those future debt repayment needs. If net cash flow is determined to be insufficient, then the deficiency must be made up through disinvestment.

In Table III, cash is generated principally from operations. New borrowings are nonexistent. The only other cash inflows were generated from selling three noncurrent assets; farm machinery and a farm truck, both fully depreciated, were sold for $11,000 and $800, respectively; breeding stock with a net book value of $23,500 was sold at a $4,000 book loss for $19,500. Therefore, current cash , needs are met primarily from operating cash flows, which may be viewed op- timistically. Growth (the purchase of machinery) is being generated internally. Debt repayment is the major use of funds. Debt totaling $83,970 was repaid within the year. This may be indicative of a mature business where growth in operations is not a priority. The $10,008 net decrease in cash may be misleading, due to the fact that cash and cash equivalents (CDs, savings) are all considered cash. This farm operator had a $33,000 beginning balance and a $22,992 ending balance in cash. The cash balance must be compared to a comfortable operating cash balance in order to judge its adequacy. If $10,000 is adequate then the decrease of $10,008 is not alarming and may mean that the operator decided to employ cash in a resource which will yield a higher return.

Analysis of Past Performance: Net Cash Flow Approach

Another method of analyzing the SCF may be to examine the net figures of the operating, investing, and financing sections. Net cash provided by operating activities is considered available to supply the resources for growth. Management should analyze the adequacy of available cash and the proportion of cash paid in dividends and distributions. At issue is how well the entity's results fit with its goals and objectives and any financial covenants or restrictions imposed by lenders or creditors.

To evaluate the use of growth funds for net investment and debt repayment, several key questions should be addressed:

(1) Is the entity growing from its own earnings or primarily from borrowed capital? . ; . . .

398 BURCKEL, WATTERS, AND DAUGHTREY

(2) Is the entity making proper reductions in debt? (3) Is the entity rolling debt; in other words, is it paying old debt with new

debt?

The four cases presented in Table IV illustrate how an entity may be using its cash.

The amounts used in Case 1 of Table IV come from the sample SCF presented earlier. Cases 2, 3, and 4 are hypothetical cases used to illustrate different possible financial scenarios. Cases 1 and 4 are similar in that concentration was on reducing debt. In Case 3 some investments were liquidated and used with growth funds to reduce debt. In Case 1 the entity is growing by expanding investment, but is doing so within the capacity of its own funds. In other words, this entity is growing through internally generated financing. In Case 2 the $113,180 investment expenditure required $10,000 of net external financing. The significance of this analysis is that agricultural management objectives can be illuminated and scrutinized for their possible achievement, given a farm operator's financial condition.

Analysis of Projections of Future Performance

Forecasting annual earnings and/or cash flows from operations has long been a topic of financial accounting research. ̂ ^ Most of these studies have examined the use of various mathematical models in the prediction of annual earnings and cash flows. Whether a sophisticated mathematical model or a gut feeling is employed, estimates of future earnings and cash flows should be made.

As mentioned earlier, the reconciliation of accrual net income to operating cash flows may provide information useful in assessing the reasonableness of projections of future cash flows. Projections of future cash flows may be assessed by first estimating future income based on reports of past income and then converting those future income estimates to estimates of future cash flows by allowing for leads and lags between cash flows and income. Information about similar leads and lags in the past are likely to be helpful in that process.

The SCF will yield information for future operations by making the enterprise's management develop specific plans to achieve its goals. Decisions must be made as to how the agricultural operation will grow, internally with retained earnings, or externally, with debt or equity financing. Thus, by preparing and analyzing a SCF, management may develop current and long-range plans for future opera-

Table IV. Analysis of a SCF under Four Separate Scenarios: Net Cash Flow Approach.

Item

Potential Growth Resources Net (Investment)

Disinvestment Net (Decrease) Increase in

Financing Cash Adequacy (Inadequacy)

Case 1

893,172 (19,210)

(83,970)

8(10,008)

Case 2

893,172 (113,180)

10,000

$(10,008)

Case 3

893,172 25,000

(128,180)

8(10,008)

Case 4

893,172 (15,210)

(87,970)

8(10,008)

CASH FLOW 399

tions. The very fact that the entity uses a SCF as a planning and control device is a positive reflection about the entity's future performance.

A SCF may provide information useful in assessing specific projections of future performance. For example, an entity may be projecting steady, moderate growth and increases in operating cash infiows. However, if the current period SCF indicates significant disinvestment, caution is in order. Growth and in- creases in operating cash flows should come from an entity's revenue-generating resources. If these resources are contracting, the entity may in fact be entering a period of shrinking profits and declining cash inflows. Timely evaluation of performance is critical and the issuance of a SCF quarterly is recommended.^^

In general, one should consider the financial activities and results of the current period as reflected in the SCF in conjunction with any projections about future cash flows. Projections that appear unreasonable or contradictory to infor- mation contained in the SCF should be scrutinized in greater detail and, if necessary, appropriately discounted.

Furthermore, significant cash items that do not appear in the SCF but are disclosed in the notes to the statement must also be analyzed. Transactions commonly recognized in financial statements include the acquisition of assets by assuming liabilities including capital lease obligations. Those transactions result in no cash inflows or outflows in the period in which they occur but generally have a significant effect on the prospective cash flows of a business. For example, a capitalized lease obligation requires future lease payments in cash, and conver- sion of debt to equity generally will eliminate nondiscretionary payments of interest on the debt. The net effect on assets and liabilities of assuming debt to acquire an asset is similar to that of borrowing cash to buy the asset.

Finally, all significant noncash investing and financing transactions must be disclosed in either the SCF or in a separate schedule to provide more complete information about their investing and financing activities during the period. The possible effects of such current noncash transactions on future cash flows should be considered in analyzing information about projected future cash flows.

CONCLUSION

The SCF provides important information not presented in the income statement or balance sheet: it provides detailed information about how an entity generates and uses cash. A proper analysis of a SCF should provide information useful in assessing the amount, timing, and uncertainty of prospective cash flows and in identifying factors that influence an entity's liquidity and solvency.

REFERENCES

1. American Bankers Association, Recommendations of the Farm Financial Standards Task Force, Washington, DC, May 1990.

2. "Statement of Cash Flows," Statement of Financial Accounting Standards Board No. 95, FASB, Stamford, CT, 1987.

3. Recommendations of the Farm Financial Standards Task Force, p. 17. 4. "Ohjeetives of Financial Reporting by Business Enterprises," Statement of Financial Account-

ing Concepts No. 1, FASB, Stamford, CT, November 1978, p. viii. 5. "Statement of Cash Flows," pars. 107 and 111.

400 BURCKEL, WATTERS, AND DAUGHTREY

6. Thomas Frey and Arnold Oltmans, "The Statement of Cash Flows," Agriftnance, April 1989, p. 34.

7. J.J. Mahoney, M.V. Sever, and J.A. Theis, "Cash Flow: FASB Opens the Floodgates," Journal of Accountancy, May 26 (1988).

8. "Statement of Cash Flows," pars. 27 and 30. 9. Recommendations of the Farm Financial Standards Task Force, p. 25; "The Statement of Cash

Flows," Agrifinance, April, 34 (1989). 10. "Statement of Cash Flows," par. 21. 11. For example, J. Hull, "Monitoring a Company's Operating Cash Flow Using Variance Analy-

sis," Accounting Horizons, Sept., 50 (1990), presents a dollar-variance analysis format for identifying the impact of firm profitability, sales growth, working capital management, interest payments, and taxes on cash flows.

12. For example, see R.M. Bowen, D. Burgstahler, and L.A. Daley, "The Incremental Information Content of Accrual versus Cash Flows," Accounting Review, October (1987); R.R. Greenberg, G.L. Johnson, and K. Ramesh, "Earnings versus Cash Flow as a Predictor of Future Cash Flow Measures," Journal of Accounting, Auditing and Finance, Fall (1986); and M.J. Gombola and J.E. Ketz, "A Note on Cash Flow and Classification Patterns of Financial Ratios," Accounting Review, January (1983).

13. R.M. Bracken and A.G. Volkan, "Forecasting Cash Flows: Will the New Reporting Rules Help?," Journal of Business Forecasting, Spring, 8 (1988).