Concept explainers
Financial Analysis
Purpose: To help to familiarize you with the financial reporting of a real company in order to further your understanding of the chapter material you are learning.
This case focuses on the cash flows of Columbia Sportswear. Recall that inflows and outflows of cash are classified as operating activities, investing activities, or financing activities. The statement of cash flows presents cash flows from each of these three activities. It is. therefore, important to understand the information provided in this revealing financial statement. The statement of cash flows and additional related information for Columbia Sportswear are disclosed in its annual report found in Appendix A.
Requirements
- 1. Look at the operating activities section of the statements of cash flows. Compare the net cash provided by operating activities to the net income for each of the three years presented. Are the net income amounts reported on the cash flow statement the same as on the income statement? How does the net cash flow provided by operations compare to the net income? Why do they differ? Is this difference good or bad? Have the net cash flows provided by operations been increasing or decreasing? Why are
depreciation and amortization added back each year? - 2. Look at the investing activities section of the statements of cash flows. What has created the largest inflows and outflows of cash related to investing activities in each of the three years presented? Can you determine whether Columbia Sportswear has been spending money to purchase more property and equipment? Did investing activities provide or use cash for the three years presented?
- 3. Look at the financing activities section of the statements of cash flows. Did financing activities provide or require cash for the three fiscal years presented? What is the significance of this information? What are the stock repurchase and dividend trends? What was the largest item in the financing section for the most recent year?
- 4. How do you feel about the overall sufficiency of cash flows? Does the net cash provided from operations cover the net cash required for investing activities for each of the three years? Does the net cash provided from operations cover the net cash required for financing activities for each of the three years?
- 5. What was the net change in cash and cash equivalents for the most recent fiscal year? Does the ending cash amount agree with the cash and cash equivalents reported on the balance sheet? Do you have any other observations about the statement of cash flows?
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Financial Accounting, Student Value Edition (5th Edition)
- CHALLENGE PROBLEM In this chapter, you learned about three important financial statements: the income statement, statement of owners equity, and balance sheet. As mentioned in the margin note on page 34, most firms also prepare a statement of cash flows. Part of this statement reports the cash received from customers and cash paid for goods and services. REQUIRED Take another look at the Demonstration Problem for Kenny Youngs Home and Away Inspections. Note that when revenues are measured based on the amount earned, and expenses are measured based on the amount incurred, net income for the period was 4,165. Now, compute the difference between cash received from customers and cash paid to suppliers of goods and services by completing the form provided below. Are these measures different? Which provides a better measure of profitability?arrow_forwardUse the following excerpts from Nutmeg Companys financial records to determine net cash flows from operating activities and net cash flows from investing activities.arrow_forwardUse the following excerpts from Kirsten Companys Statement of Cash Flows and other financial records to determine the companys free cash flow.arrow_forward
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- The following are excerpts from Hamburg Companys statement of cash flows and other financial records. Compute the following for the company: A. free cash flow B. cash flows to sales ratio C. cash flows to assets ratioarrow_forwardIn which section of the statement of cash flows would each of the following transactions be included? For each, identify the appropriate section of the statement of cash flows as operating (O), investing (I), financing (F), or none (N). (Note: some transactions might involve two sections.) A. paid advertising expense B. paid dividends to shareholders C. purchased business equipment D. sold merchandise to customers E. purchased plant assetsarrow_forwardMatch the following assertions with their associated description: (a) existence/occurrence, (b) completeness. (c) rights and obligations, (d) valuation or allocation, (e) presentation and disclosure. 1. Cash accounts arc properly classified on the balance sheet and disclosed in the notes to the financial statements. 2. Cash balances exist at the balance sheet date. 3. The recorded balances reflect the true underlying economic value of those assets. 4. The company has title to the cash accounts as of the balance sheet date. 5. Cash balances include all cash transactions that have taken place during the period.arrow_forward
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