Cash flows

Cash Is King for all businesses. You can determine a companys cash situation by analyzing the cash flow statement. The cash flow statement also helps determine whether the company (1) is generating enough cash from its operations to make new investments and pay dividends or (2) will need to generate cash by issuing new debt or selling its assets.

A firm has $100 million in revenues. Does that mean it has generated a cash flow of $100 million?

No

Yes

Three categories of activities (operating, investing, and financing) generate or use the cash flow in a company. In the following table, identify which type of activity is described by each statement.

	Operating Activity	Investing Activity	Financing Activity
Yum Co. uses cash to repurchase 10% of its common stock.
A company records a decrease in its total raw materials inventory from the previous year.
Ruth Enterprises distributes a holiday bonus to all its employees.
A company buys some common stock in its suppliers firm with its extra cash.

During the last year, Cold Goose Metal Works Inc. generated $702,000 in cash flow from operating activities and had negative cash flow generated from investing activities ($-384,000). At the end of the first year, Cold Goose Metal Works Inc. had $120,000 in cash on its balance sheet, and the firm had $380,000 in cash at the end of the second year. What was the firms cash flow (CF) due to financing activities in the second year?

$43,500

$-29,000

$-58,000

$72,500