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MIDTERM 1 Statement of cash flows • Operating: if experiencing positive cash flow where is this coming from. Cash from operations is most sustainable. In short term a company can augment negativ... e cash flow from external sources such as debt/equity but long-term cash must be generated from operations in order for a company to remain in business. If negative in a cash deficit. Tight economy or introduction to expanded new products may require increase in Inv and AR while attempting to accelerate business. • Financing: reveals how much debt or equity has been acquired this year. Match short term loans with short term assets while long term loans with long term assets • Investing: investing in fixed assets by examining the source to fund them. Fixed assets should be acquired through cash from operating or long-term debt and equity Ratio Analysis: • Profitability: generation of revenues (net sales) in excess to operating expenses o COGS, Stand out Op Exp, Total Op Exp, Int Exp, Net income, ROE o Are they increasing faster or slower than sales o Want good/increasing ROE as net earnings over shareholders equity • Efficiency: the efficient use of assets to grow o AR, Inv, AP o High Age AP too high will stop supplying them (too long to pay suppliers/creditors) o Want low INV to sell inventory to make profit [Show More]
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