The Cash Flow Statement

a. A company’s cash flow statement is classified by major categories of activities:

1. Identify each of the three categories.

2. For each category, identify at least one major source of cash, one major use of cash, and indicate whether the sources and uses you have identified would be considered regular and recurring or infrequent.

b. You are considering investing in a company. Which cash flow category or categories of the company’s cash flow statement would be of greatest use in answering the following questions? Explain your choice in each case.

1. Does it appear the company will be able to meet annual payment requirements on a new ten-year bank loan?

2. Did the company sell additional stock during the period?

3. Did the company purchase additional production equipment during the period? If so, how was the cash generated?

4. Did the company sell off unused equipment during the period?

5. Did cash on hand go up or down as a result of the company’s operating activities in the period?