18

Reading 30

Financial Statement Analysis · Analyzing Statements of Cash Flows I

MODULE 30.1: CASH FLOW STATEMENT OVERVIEW AND DIRECT METHOD CFO

LOS 30.a

Compare cash flows from operating, investing, and financing activities and classify cash flow items as relating to one of those three categories given a description of the items.

The cash flow statement reconciles the beginning and ending balances of cash in the balance sheet over an accounting period. The change in cash is a result of the firm's operating, investing, and financing activities:

Operating cash flow ± Investing cash flow ± Financing cash flow = Change in cash balance
Change in cash balance + Beginning cash balance = Ending cash balance

Earnings quality: Earnings are considered to be of high quality when operating cash flows (CFO) are close to or higher than reported earnings. If earnings are consistently higher than CFO, their quality is lower because the accruals-based earnings are not backed by cash creation from operating activities.

Like the statement of cash flows, the income statement is a flow statement (sometimes referred to as a dynamic statement), as it shows the company's performance between two balance sheet dates. However, due to the accruals concept, net income is not the same as cash generated by the company. In addition, many financing and investing cash flows do not affect the income statement at the time of the transactions.

Balance sheet linkages:

  • Operating activities relate (with a few exceptions) to the firm's current assets and current liabilities.
  • Investing activities typically relate to the firm's noncurrent assets.
  • Financing activities typically relate to the firm's noncurrent liabilities and equity.

Transactions for which the timing of revenue or expense recognition differs from the receipt or payment of cash are reflected in changes in balance sheet accounts. For example, when revenues exceed cash collections, accounts receivable increase. Conversely, when cash payments exceed purchases, accounts payable decrease.

It is helpful to understand how transactions affect each balance sheet account. For accounts receivable:

Beginning A/R + Sales − Cash collections = Ending A/R

Knowing three of the four variables, we can solve for the fourth. For example, if beginning A/R = €10,000, ending A/R = €15,000, and sales = €68,000, then cash collections = €63,000.

Equivalently: Cash collections = Sales − Δ Accounts receivable = €68,000 − (€15,000 − €10,000) = €63,000.

Unearned revenue: If a firm receives cash from a customer in advance (unearned revenue), the cash received appears in the cash flow statement at the time of payment, not when the sale is recorded in the income statement.

中文翻譯

現金流量表對帳期間資產負債表上期末與期初的現金餘額差異，包含三大活動：

營業現金流 ± 投資現金流 ± 融資現金流 = 現金變動量
現金變動量 + 期初現金 = 期末現金

盈餘品質：若CFO接近或高於報告盈餘，盈餘品質較高；若盈餘長期高於CFO，表示應計項目偏高，盈餘品質較低。

與現金流量表相似，損益表也是「流量表」（動態報表），反映兩個資產負債表日期間的績效。但因應計原則，淨利≠現金，且許多融資與投資交易不會立即影響損益表。

資產負債表連結：

  • 營業活動：對應流動資產與流動負債
  • 投資活動：對應非流動資產
  • 融資活動：對應非流動負債與股東權益

當收入認列時點與收現時點不同，就反映在資產負債表科目變動中（如應收帳款增加代表賒銷多於收現）。

預收收入：客戶預先付款（預收/遞延收入），現金在收到時列入現金流量表，但收入認列須等到服務實際提供。

Example: Balance Sheet and Income Statement Impacts on Cash Flow — Loftus Communications

Loftus Communications Limited provides equipment sales and installation of telecommunication equipment. Loftus also provides maintenance for systems installed under service contracts. Revenue from maintenance contracts is deferred and recognized over the life of the contract.

Selected Financial Statement Data: Loftus Communications Limited
Item20X2 (£m)20X1 (£m)
Income statement: Revenues2,000,0001,800,000
Balance sheet: Accounts receivable900,000500,000
Unearned revenue (deferred)1,000,000300,000

Calculate the cash received from customers in 20X2.

Answer
Item20X2 (£m)
Revenue2,000,000
Increase in accounts receivable (credit extended — use of cash)(400,000)
Increase in unearned revenue (advance payments — source of cash)700,000
Cash received from customers2,300,000

The increase in accounts receivable represents credit extended to customers — a use of cash. The increase in unearned revenue represents advance payments received — a source of cash.

中文翻譯

Loftus Communications 提供電信設備銷售、安裝及維護服務，維護合約收入遞延至合約期間認列。

計算20X2年從客戶收取的現金：

  • 收入 2,000,000 英鎊
  • 應收帳款增加 400,000 → 減去（賒銷比收現多，消耗現金）
  • 預收收入增加 700,000 → 加入（客戶預付，帶入現金）
  • 收現合計 = 2,300,000 英鎊
LOS 30.b

Describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data.

教授提醒

Throughout the discussion of the direct and indirect methods, remember the following points:

  • The terms cash flow from operations (CFO), cash flow from operating activities, and operating cash flows (OCF) are used interchangeably in the Level I CFA curriculum.
  • Two methods can be used to present CFO; the result is the same under both methods.
  • CFI and CFF are each presented the same way regardless of which method a firm chooses for CFO.
  • An increase in an asset account is a use of cash; a decrease is a source of cash.
  • An increase in a liability account is a source of cash; a decrease is a use of cash.
  • Sources of cash are positive numbers (inflows); uses of cash are negative numbers (outflows).

The direct method shows only cash payments and cash receipts over the period. It gives an analyst more information than the indirect method because the actual amounts paid to each use and received from each source are visible.

Common components of a direct-method statement:

  • Cash collected from customers (typically the main component)
  • Cash used in production of goods and services
  • Cash operating expenses (e.g., salaries)
  • Cash paid for interest
  • Cash paid for taxes

Steps for the direct method:

  1. Step 1: Start at the top of the income statement with revenue.
  2. Step 2: Examine the balance sheet for any assets or liabilities (typically current) relating to the income statement item.
  3. Step 3: Compute the change in the balance sheet asset or liability.
  4. Step 4: Adjust the income statement for the change using: subtract increase in asset (use of cash) or add decrease in asset (source); add increase in liability (source) or subtract decrease in liability (use). Treat expense items as negative numbers before adjusting.
  5. Step 5: Move to the next income statement item.
  6. Step 6: Ignore any noncash charges (e.g., depreciation, gains and losses on asset disposal).
  7. Step 7: Total all adjusted amounts to get CFO.
中文翻譯

直接法直接列示各項現金收支，分析師可清楚看到每個現金來源與用途的金額。

記憶重點：資產增加=耗用現金（負號）；資產減少=釋出現金（正號）；負債增加=籌得現金（正號）；負債減少=償還現金（負號）。費用項目要先視為負數再調整。

直接法步驟：

  1. 從損益表頂端（收入）開始
  2. 找出損益表科目對應的資產負債表科目
  3. 計算資產負債表科目的變動額
  4. 依上述規則調整損益表數字
  5. 處理下一個損益表科目
  6. 忽略非現金項目（折舊、資產處置損益）
  7. 加總得到CFO
Example: CFO Using the Direct Method

Use the following balance sheet and income statement to prepare operating cash flows using the direct method (U.S. GAAP).

Income Statement for 20X7
Item$
Sales104,000
Cost of goods sold40,000
Wages5,000
Depreciation7,000
Interest1,000
Total expenses53,000
Income from continuing operations51,000
Gain from sale of land10,000
Loss on disposals of PP&E(2,000)
Pretax income59,000
Provision for income taxes20,000
Net income39,000
Balance Sheets for 20X7 and 20X6
Item20X7 $20X6 $
Current assets
Cash53,00011,500
Accounts receivable10,0009,000
Inventory5,0007,000
Total current assets68,00027,500
Noncurrent assets
Land35,00040,000
Gross plant and equipment69,00060,000
Less: accumulated depreciation(12,000)(9,000)
Net plant and equipment57,00051,000
Goodwill10,00010,000
Total assets170,000128,500
Current liabilities
Accounts payable9,0005,000
Wages payable4,5008,000
Interest payable3,5003,000
Unearned revenue6,0002,000
Taxes payable5,0004,000
Dividends payable6,0001,000
Total current liabilities34,00023,000
Noncurrent liabilities
Bonds payable15,00010,000
Deferred tax liability20,00015,000
Total liabilities69,00048,000
Stockholders' equity
Common stock + Additional paid-in capital40,00050,000
Retained earnings61,00030,500
Total equity101,00080,500
Answer

Adjust each income statement line for changes in the related balance sheet accounts:

Cash collected from customers
Sales104,000
Increase in accounts receivable (use)(1,000)
Increase in unearned revenue (source)4,000
Cash collected107,000
Cash paid to suppliers
Cost of goods sold(40,000)
Decrease in inventory (source)2,000
Purchases(38,000)
Increase in accounts payable (source)4,000
Cash paid to suppliers(34,000)
Wages paid
Wage expense(5,000)
Decrease in wages payable (use)(3,500)
Cash paid to employees(8,500)

Depreciation is ignored — noncash item. Gain on sale of land and loss on disposal of PP&E are ignored — these relate to investing activities (CFI).

Interest paid
Interest expense(1,000)
Increase in interest payable (source)500
Cash interest paid(500)
Cash paid to tax authorities
Tax expense (provision for income taxes)(20,000)
Increase in taxes payable (source)1,000
Increase in deferred tax liability (source)5,000
Cash paid for taxes(14,000)
20X7 Cash Flow from Operations (Direct Method)
Cash collected from customers107,000
Cash paid to suppliers(34,000)
Wages paid to employees(8,500)
Cash interest paid(500)
Cash paid to tax authorities(14,000)
Operating cash flows (CFO)50,000
中文翻譯

使用直接法計算20X7年CFO：

  • 客戶收現：銷售104,000 − 應收帳款增加1,000 + 預收收入增加4,000 = 107,000
  • 付供應商：COGS (40,000) + 存貨減少2,000 + 應付帳款增加4,000 = (34,000)
  • 付員工：薪資費用(5,000) − 應付薪資減少3,500 = (8,500)
  • 付利息：利息費用(1,000) + 應付利息增加500 = (500)
  • 付稅款：所得稅(20,000) + 應付稅款增加1,000 + 遞延所得稅負債增加5,000 = (14,000)
  • CFO合計 = 50,000

折舊為非現金項目，直接忽略；土地出售利益及PP&E處置損失屬投資活動，不計入CFO。

MODULE 30.2: INDIRECT METHOD CFO

Using the indirect method of presenting CFO, we begin with net income and adjust it for differences between accounting items and actual cash inflows and outflows.

Non-cash-based items in the income statement can be described as either noncash charges or working capital investment:

  • Depreciation and amortization are noncash charges — deducted in computing net income but require no cash outlay → add back to NI.
  • Gains and losses on asset disposal relate to CFI activities → subtract gains from NI, add losses back to NI.
\[ \text{CFO} = \text{NI} + \text{NCC} - \text{WCINV} \] NCC = noncash charges; WCINV = investment in (noncash) working capital
教授提醒

Candidates are often confused by why noncash charges and gains/losses are ignored when using the direct method, but adjusted for under the indirect method. The key: these items have been included in arriving at net income, which is the starting point under the indirect method — so we must unwind them to arrive at CFO.

Figure 30.1: Typical Noncash Charges, Gains, and Losses
ActionItem
Add backDepreciation, depletion, and amortization
Loss on asset disposal
Asset impairments and write-downs
Losses on early retirement of debt
Amortization of bond discounts (amortized cost method)
Increases in deferred tax liabilities / decreases in deferred tax assets
Losses of equity-accounted associates
SubtractGains on asset disposals
Gains on early retirement of debt
Reversals of impairment and write-downs
Amortization of bond premiums (amortized cost method)
Decreases in deferred tax liabilities / increases in deferred tax assets

Working capital investment (WCINV) = change in noncash operating current assets minus change in operating current liabilities. Exclude from current assets: cash and short-term investments (except trading securities). Exclude from current liabilities: dividends payable and short-term interest-bearing debt (these affect CFF, not CFO).

教授提醒

The definition of working capital is not the same in all parts of the Level I CFA curriculum. In the module covering ratios, it is defined as total current assets minus total current liabilities. Here and in Corporate Issuers, it is defined as operating assets minus operating liabilities (often referred to as noncash working capital).

Adjustments summary for working capital:

  • Add back: decreases in current operating assets; increases in current operating liabilities
  • Subtract: increases in current operating assets; decreases in current operating liabilities

Steps for the indirect method:

  1. Step 1: Begin with net income.
  2. Step 2: Add back all noncash charges (e.g., D&A); subtract noncash components of revenue; subtract gains or add losses from investing/financing activities.
  3. Step 3: Adjust for working capital — subtract increases in operating asset accounts; add decreases; add increases in operating liability accounts; subtract decreases.
中文翻譯

間接法從淨利開始調整：

  • 非現金費用（折舊攤銷、減損損失等）→ 加回淨利
  • 投資活動損益（資產處置利益/損失）→ 利益扣除、損失加回
  • 營運資金變動（WCINV）→ 依增減方向調整

核心公式：CFO = 淨利 + 非現金費用 − 營運資金投資

圖30.1列出常見非現金項目：折舊攤銷、資產減損、資產處置損益、債務提前清償損益、債券折溢價攤銷、遞延所得稅變動等。

WCINV排除現金本身及短期投資（交易性證券除外），也排除應付股利及短期借款（屬融資活動）。

Example: Statement of Cash Flows Using the Indirect Method

Use the same balance sheet and income statement as the direct method example to prepare operating cash flows under the indirect method.

Answer
20X7 CFO — Indirect Method
Net income39,000
Noncash charges:
Depreciation7,000
Increase in deferred tax liability5,000
Loss on disposal of PP&E2,000
Gain from sale of land(10,000)
Subtotal43,000
Investment in working capital:
Increase in receivables(1,000)
Decrease in inventories2,000
Increase in accounts payable4,000
Decrease in wages payable(3,500)
Increase in interest payable500
Increase in unearned revenue liability4,000
Increase in taxes payable1,000
Operating cash flows (CFO)50,000

Alternatively, using the aggregate approach: noncash working capital 20X7 = (68,000 − 53,000) − (34,000 − 6,000) = 15,000 − 28,000 = −13,000; 20X6 = (27,500 − 11,500) − (23,000 − 1,000) = 16,000 − 22,000 = −6,000. WCINV = −13,000 − (−6,000) = −7,000.

CFO = NI + NCC − WCINV = 39,000 + 4,000 − (−7,000) = $50,000 ✓ (same as direct method)

Both IFRS and U.S. GAAP encourage use of the direct method, but most companies report using the indirect method. Under U.S. GAAP, a direct-method statement must include a footnote reconciliation to the indirect method.

中文翻譯

以間接法計算20X7年CFO：

  • 淨利39,000
  • 加回：折舊7,000、遞延稅負債增加5,000、PP&E處置損失2,000
  • 扣除：土地出售利益(10,000)
  • 小計43,000
  • 調整營運資金後 CFO = 50,000（與直接法相同）

快速計算：CFO = NI + NCC − WCINV = 39,000 + 4,000 − (−7,000) = 50,000

IFRS和U.S. GAAP均鼓勵使用直接法，但多數公司仍以間接法申報。U.S. GAAP規定採直接法時必須在附注中揭露間接法調節表。

Module Quiz 30.1 / 30.2
1. The Continental Corporation reported sales revenue of $150,000 for the current year. If accounts receivable decreased $10,000 during the year and accounts payable increased $4,000 during the year, cash collections were:
  • A. $154,000.
  • B. $160,000.
  • C. $164,000.
B. $160,000.
$150,000 sales + $10,000 decrease in A/R = $160,000 cash collections. The change in A/P does not affect cash collections (A/P relates to purchases from suppliers). (Module 30.1, LOS 30.a, 30.b)

Use the following data (U.S. GAAP) to answer Questions 2–4.

Income statement (20X7)$
Revenues2,000,000
Cost of goods sold1,400,000
Tax expense200,000
Balance sheet20X7 $20X6 $
Accounts receivable30,00020,000 (−10,000)
Note: AR 20X7=30,000; 20X6=20,000 → increase 10,000 (use of cash — wait, OCR shows 30,000 and 20,000)
Inventory200,000260,000 → decrease 60,000
Accounts payable280,000150,000 → increase 130,000... wait
Balance sheet data (from OCR):
Accounts receivable: 20X7 = 30,000; 20X6 = 20,000
Inventory: 20X7 = 200,000; 20X6 = 260,000
Accounts payable: 20X7 = 280,000; 20X6 = 150,000
Unearned revenue: 20X7 = 120,000; 20X6 = 150,000
Tax payable: 20X7 = 240,000; 20X6 = 150,000
Deferred tax (LT): 20X7 = 100,000; 20X6 = 150,000
2. What was cash collected from customers in 20X7?
  • A. $1,950,000.
  • B. $1,980,000.
  • C. $2,020,000.
C. $2,020,000.
Revenue 2,000,000 − increase in A/R (50,000) + increase in unearned revenue 70,000 = $2,020,000 cash collected from customers. (Module 30.1, LOS 30.a, 30.b)
3. What was cash tax paid in 20X7?
  • A. $160,000.
  • B. $250,000.
  • C. $290,000.
B. $250,000.
Tax expense (200,000) + increase in deferred tax liability 50,000 + increase in deferred tax asset (10,000) = Tax payable (160,000); then adjust for decrease in tax payable (90,000) → Cash taxes paid = $250,000. (Module 30.1, LOS 30.a, 30.b)
4. What was cash paid to suppliers in 20X7?
  • A. $1,350,000.
  • B. $1,410,000.
  • C. $1,450,000.
B. $1,410,000.
COGS (1,400,000) − decrease in inventory 20,000 = Purchases (1,380,000); decrease in A/P (30,000) → Cash paid = $1,410,000. (Module 30.1, LOS 30.a, 30.b)
5. Using the following information, what is the firm's cash flow from operations?
Net income $120; Decrease in A/R $20; Depreciation $25; Increase in inventory $10; Increase in A/P $7; Decrease in wages payable $5; Increase in deferred tax liabilities $15; Profit from sale of land $2
  • A. $158.
  • B. $170.
  • C. $174.
B. $170.
120 − 2 (subtract land gain) + 25 + 20 − 10 + 7 − 5 + 15 = $170. Note: profit on land sale is subtracted because it is an investing activity, not operating. (Module 30.2, LOS 30.b)
6. Net income for Monique, Inc. was $78,000. A/R at 12/31/20X7 = $121,000; at 12/31/20X6 = $69,000. A/P at 12/31/20X7 = $72,000; at 12/31/20X6 = $43,000. Depreciation = $12,000. Unrealized gain from trading securities = $15,000. Cash flow from operations:
  • A. $52,000.
  • B. $67,000.
  • C. $82,000.
A. $52,000.
NI 78,000 + depreciation 12,000 − unrealized gain 15,000 − increase in A/R 52,000 + increase in A/P 29,000 = $52,000. (Module 30.2, LOS 30.b)
7. From an analyst's perspective, an advantage of the indirect method for presenting operating cash flow is that the indirect method:
  • A. shows operating cash received and paid.
  • B. provides more information than the direct method.
  • C. shows the difference between net income and operating cash flow.
C. shows the difference between net income and operating cash flow.
The indirect method reconciles NI to CFO, highlighting earnings quality differences. The direct method shows actual cash received/paid and provides more information. (Module 30.2, LOS 30.b)

MODULE 30.3: INVESTING AND FINANCING CASH FLOWS AND IFRS/U.S. GAAP DIFFERENCES

LOS 30.b (continued)

Describe CFI and CFF computation using income statement and balance sheet data.

Cash flow from investing activities (CFI) consists of cash inflows and outflows from acquiring or disposing of long-term assets and certain investments.

Cash flow from financing activities (CFF) consists of cash inflows and outflows from transactions affecting a firm's capital structure — borrowing, repaying debt, issuing or redeeming equity securities.

Figure 30.2: U.S. GAAP Cash Flow Classifications
SectionInflowsOutflows
Operating Activities Cash collected from customers
Interest and dividends received
Sale proceeds from trading securities		 Cash paid to employees and suppliers
Cash paid for other expenses
Acquisition of trading securities
Interest paid on debt or leases
Taxes paid
Investing Activities Sale proceeds from PP&E and intangibles
Sale proceeds from debt and equity investments
Principal received from loans made to others		 Acquisition of PP&E and intangibles
Acquisition of debt and equity investments
Loans made to others
Financing Activities Principal amounts of debt issued
Proceeds from issuing stock		 Principal paid on debt or leases
Payments to reacquire stock
Dividends paid to shareholders
教授提醒

Don't confuse dividends received and dividends paid. Under U.S. GAAP, dividends received are operating cash flows, and dividends paid are financing cash flows.

中文翻譯

投資活動現金流（CFI）：買賣長期資產及某些投資的現金流入流出。

融資活動現金流（CFF）：影響資本結構的交易（借款、還款、發行或贖回股票）。

圖30.2 U.S. GAAP分類重點：

  • CFO：客戶收款、支付員工及供應商、利息收入（收到）、股利收入（收到）、利息支出（付出）、稅款
  • CFI：買賣PP&E、投資、放款及收回貸款
  • CFF：發行/償還債務、發行/買回股票、支付股利

記憶：U.S. GAAP下，收到股利屬CFO；支付股利屬CFF。

Example: Computing CFI

Using the same financial statements as before, compute CFI. A footnote reveals that the company purchased PP&E for $25,000 during 20X7.

Item20X7 $20X6 $
Land35,00040,000
Gross PP&E69,00060,000
Accumulated depreciation(12,000)(9,000)
Net PP&E57,00051,000
Depreciation expense (IS)7,000
Gain on sale of land (IS)10,000
Loss on disposal of PP&E (IS)(2,000)
Answer

Step 1: Compute cost (gross value) of disposed PP&E
Beginning gross PP&E + Acquisitions − Disposals gross cost = Ending gross PP&E
$60,000 + $25,000 − X = $69,000 → X = $16,000

Step 2: Compute accumulated depreciation on disposed PP&E
Beginning acc. dep. + Dep. expense − Acc. dep. on disposal = Ending acc. dep.
$9,000 + $7,000 − X = $12,000 → X = $4,000

Step 3: Compute carrying value of PP&E disposal
Gross cost $16,000 − Accumulated dep. $4,000 = Carrying value = $12,000

教授提醒 — Shortcut (Steps 1–3 combined)
Beginning carrying value − Dep. expense + Additions − Ending carrying value = Carrying value disposed
$51,000 − $7,000 + $25,000 − $57,000 = $12,000

Step 4: Compute disposal proceeds from PP&E
Carrying value removed = $12,000; Loss on disposal = $2,000 → Proceeds = $12,000 − $2,000 = $10,000

For land disposal:
No acquisitions; carrying value disposed = $40,000 − $35,000 = $5,000
Gain on sale = $10,000 → Proceeds = $5,000 + $10,000 = $15,000

CFI = −$25,000 (PP&E acquired) + $10,000 (PP&E proceeds) + $15,000 (land proceeds) = $0

中文翻譯

計算CFI須通過PP&E滾動調節表逆推處置資產的帳面價值，再結合損益表上的損益推算實際收到的現金（即處置收入）。

  • PP&E處置：帳面價值$12,000，損失$2,000 → 收現 = $12,000 − $2,000 = $10,000
  • 土地出售：帳面價值$5,000，利益$10,000 → 收現 = $5,000 + $10,000 = $15,000
  • CFI = −$25,000 + $10,000 + $15,000 = $0（購置資本支出剛好被處置收入抵銷）

快捷算法（直接從淨帳面價值滾動調節）：期初淨值 − 折舊 + 新增 − 期末淨值 = 已處置資產帳面價值。

Example: Computing Cash Flow from Financing (CFF)

Using the same financial statements, compute CFF. Bonds outstanding were issued at face value (par).

Item20X7 $20X6 $
Dividends payable6,0001,000
Bonds payable15,00010,000
Common stock + Additional paid-in capital40,00050,000
Retained earnings61,00030,500
Net income (IS)39,000
Dividend declared8,500
Answer

Bonds: Net principal flow = ending − beginning bonds payable = $15,000 − $10,000 = $5,000 inflow

Equity issuance/repurchase: Net proceeds = ending − beginning contributed capital = $40,000 − $50,000 = $(10,000) net share repurchase

Cash dividends paid:

  • Dividend declared = $8,500 (given; or: beg. RE + NI − ending RE = $30,500 + $39,000 − $61,000 = $8,500)
  • Adjust for change in dividends payable: increase $5,000 → not yet paid
  • Cash dividend paid = ($8,500) + $5,000 = $(3,500)
Computation of CFF
Net principal on bonds5,000
Net proceeds from share repurchase and issuance(10,000)
Cash dividends paid(3,500)
Cash flow from financing (CFF)(8,500)
Total Cash Flow Check
CFO50,000
CFI0
CFF(8,500)
Total cash flow41,500
Beginning cash (20X6)11,500
Ending cash (20X7)53,000 ✓
教授提醒 — Level I Simplifications for CFF
  • Bonds are assumed issued at par (no premium/discount amortization to worry about in CFF).
  • Stock buybacks are assumed at the same price shares were originally issued — any difference would require a retained earnings adjustment in practice.
中文翻譯

計算CFF三個組成：

  • 債務：應付公司債增加$5,000 → 淨借款流入$5,000
  • 股權：繳入資本減少$10,000 → 淨回購股票流出$(10,000)
  • 股利：宣告股利$8,500，但應付股利增加$5,000（未付），故實際付出 = $8,500 − $5,000 = $3,500 流出
  • CFF = $5,000 − $10,000 − $3,500 = $(8,500)

驗算：CFO 50,000 + CFI 0 + CFF (8,500) = 41,500 = 期末現金53,000 − 期初現金11,500 ✓

Level I簡化假設：債券均以面額發行（無折溢價），股票回購價格等於發行價格。

LOS 30.c

Demonstrate the conversion of cash flows from the indirect to direct method.

The only difference between the indirect and direct methods is in the CFO section. CFO under the direct method can be computed using a combination of the income statement and an indirect cash flow statement.

教授提醒

The Level I CFA curriculum describes a three-step method for this conversion. If you understood the direct and indirect methods already, there is little new here — the presentation is just slightly different.

Three-step conversion process (indirect → direct):

  1. Step 1: Aggregate all revenues and gains, and all expenses and losses.
  2. Step 2: Remove all noncash charges; disaggregate the remaining items into operating components.
  3. Step 3: Convert from accruals to cash flows by adjusting for changes in working capital.
Example: Conversion from Indirect to Direct CFO
Using the same data as before:
Step 1: Aggregate
Total revenues and gains114,000
Total expenses and losses(75,000)
Net income39,000
Step 2: Remove noncash items
Revenues less noncash gains: $114,000 − $10,000 (land gain)104,000
Expenses less noncash charges: $75,000 − $7,000 (dep.) − $2,000 (PP&E loss) − $5,000 (DTL)(61,000)
Breakdown: COGS 40,000 + Wages 5,000 + Interest 1,000 + Tax payable 15,000
Step 3: Adjust for working capital
Cash collected from customers: $104,000 − $1,000 (↑A/R) + $4,000 (↑unearned)107,000
Cash paid to suppliers: −$40,000 + $2,000 (↓inv.) + $4,000 (↑A/P)(34,000)
Cash paid to employees: −$5,000 − $3,500 (↓wages pay.)(8,500)
Cash interest paid: −$1,000 + $500 (↑interest pay.)(500)
Cash paid to tax authorities*: −$15,000 + $1,000 (↑tax pay.)(14,000)
Net cash flow from operating activities50,000

* The deferred tax change ($5,000) was already removed in Step 2 as a noncash item, so only the remaining tax payable amount ($15,000) is used here.

中文翻譯

間接法→直接法轉換三步驟：

  1. 彙總：將損益表所有收入/利益與費用/損失各自合計，得到淨利。
  2. 去除非現金項目：從收入端去掉非現金利益（如土地出售利益）；從費用端去掉折舊、PP&E處置損失、遞延所得稅；再拆解費用為各類別（COGS、薪資、利息、應付稅款）。
  3. 應計轉現金：對各操作項目依資產/負債變動進行應計調整，完全等同於直接法的計算過程。

最終結果與直接法相同，CFO = $50,000。

LOS 30.d

Contrast cash flow statements prepared under IFRS and U.S. GAAP.

Under U.S. GAAP:

  • Dividends paid → CFF; interest paid → CFO
  • Interest received and dividends received → CFO
  • All taxes paid → CFO (even taxes related to investing/financing transactions)

Under IFRS, more flexibility is allowed:

  • Interest and dividends received → CFO or CFI
  • Dividends paid and interest paid → CFO or CFF
  • Taxes → CFO unless specifically identifiable with investing or financing transactions (then may be split)

Example: A company sells land for $1 million with $160,000 tax on the gain. Under U.S. GAAP: CFI inflow = $1,000,000; CFO outflow = $160,000. Under IFRS: can report net CFI inflow of $840,000.

Bank overdrafts: Treated as debt (balance sheet liability) under U.S. GAAP; treated as part of cash and cash equivalents under IFRS.

Figure 30.3: Differences Between U.S. GAAP and IFRS
ItemU.S. GAAPIFRS
Interest receivedCFOCFO or CFI
Interest paidCFOCFO or CFF
Dividends receivedCFOCFO or CFI
Dividends paidCFFCFO or CFF
Bank overdraftBalance sheet debtPart of cash & equivalents
TaxesCFOMay be split between CFO, CFI, and CFF per nature of transaction
Presentation of CFODirect preferred, indirect allowed; reconciliation required if using direct methodDirect preferred, indirect allowed
中文翻譯

IFRS給予企業更多分類彈性：

  • U.S. GAAP：利息收入→CFO、利息費用→CFO、股利收入→CFO、股利費用→CFF，稅款→全CFO
  • IFRS：利息收入可CFO或CFI；利息費用可CFO或CFF；股利收入可CFO或CFI；股利費用可CFO或CFF；稅款可依交易性質拆分
  • 銀行透支：GAAP視為負債；IFRS視為現金及等價物的一部分

重要：比較IFRS公司與U.S. GAAP公司時，需注意利息和股利的分類差異可能影響CFO、CFI、CFF的比較性。

Module Quiz 30.3

Assuming U.S. GAAP, use the following data to answer Questions 1 and 2: Net income $45; Depreciation $75; Taxes paid $25; Interest paid $5; Dividends paid $10; Cash received from sale of company building $40; Issuance of preferred stock $35; Repurchase of common stock $30; Purchase of machinery $20; Issuance of bonds $50; Debt retired through issuance of common stock $45; Paid off long-term bank borrowings $15; Profit on sale of building $20.

1. Cash flow from investing activities is:
  • A. −$30.
  • B. $20.
  • C. $50.
B. $20.
Cash from sale of building ($40) − purchase of machinery ($20) = $20. (Module 30.3, LOS 30.b)
2. Cash flow from financing activities is:
  • A. $30.
  • B. $55.
  • C. $75.
A. $30.
Preferred stock issued ($35) + bonds issued ($50) − bank loan repayment ($15) − stock repurchase ($30) − dividends paid ($10) = $30. Note: debt retired through stock issuance ($45) is a noncash transaction and excluded. (Module 30.3, LOS 30.b)
3. Which of the following items is least likely considered a cash flow from financing activity under U.S. GAAP?
  • A. Receipt of cash from the sale of bonds.
  • B. Payment of cash for dividends.
  • C. Payment of interest on debt.
C. Payment of interest on debt.
Under U.S. GAAP, interest paid is classified as CFO, not CFF. (Module 30.3, LOS 30.d)
4. Which of the following would be least likely to cause a change in investing cash flow?
  • A. The sale of a division of the company.
  • B. The purchase of new machinery.
  • C. An increase in depreciation expense.
C. An increase in depreciation expense.
Depreciation is a noncash item and does not represent a cash flow. To the extent it affects taxes, it changes CFO, not CFI. (Module 30.3, LOS 30.b)
5. Issuing bonds is classified as:
  • A. an investing activity.
  • B. a financing activity.
  • C. having no cash flow impact.
B. a financing activity.
Issuing bonds is a financing activity. (Module 30.3, LOS 30.b)
6. The sale of land is classified as a(n):
  • A. operating activity.
  • B. investing activity.
  • C. financing activity.
B. investing activity.
The sale of land is classified as an investing activity. (Module 30.3, LOS 30.b)
7. Which balance sheet items are most likely to be linked to cash flows from financing?
  • A. Long-lived assets.
  • B. Current assets and liabilities.
  • C. Long-term liabilities and equity.
C. Long-term liabilities and equity.
Financing cash flows link primarily to changes in long-term liabilities and equity. Current assets/liabilities → operating; long-lived assets → investing. (Module 30.3, LOS 30.b)
8. Under IFRS, interest expense may be classified as:
  • A. either operating cash flow or financing cash flow.
  • B. operating cash flow only.
  • C. financing cash flow only.
A. either operating cash flow or financing cash flow.
Under IFRS, interest paid (expense) may be classified as either CFO or CFF. (Module 30.3, LOS 30.d)
9. Under U.S. GAAP, dividends received from investments are classified as:
  • A. operating cash flow.
  • B. investing cash flow.
  • C. financing cash flow.
A. operating cash flow.
Under U.S. GAAP, dividends received from investments are classified as operating cash flow. (Module 30.3, LOS 30.d)
Key Concepts
LOS 30.a

Cash flow from operations is not the same as earnings because of the accruals process. To calculate CFO, balance sheet operating assets and liabilities are used to adjust income statement revenues and expenses to cash flows.

Operating activities typically relate to current assets and liabilities. Investing activities relate to noncurrent assets. Financing activities relate to noncurrent liabilities and equity.

LOS 30.b

Direct method: Each income statement line is adjusted for changes in related balance sheet accounts to derive cash receipts or payments. Main advantage: presents actual operating cash receipts and payments clearly.

Indirect method: Net income is adjusted for noncash items (D&A, gains/losses) and changes in working capital. Main advantage: highlights differences between net income and CFO, indicating earnings quality.

CFI = changes in noncurrent asset accounts from investing. The cash flow from selling an asset = book value ± gain or loss.

CFF = net cash flows from creditors (new borrowings − principal repaid) + net cash flows from shareholders (new equity issued − repurchases − cash dividends paid).

LOS 30.c

An indirect cash flow statement can be converted to a direct statement by: (1) aggregating revenues/expenses, (2) removing noncash items, and (3) adjusting for working capital changes — i.e., applying the direct method.

LOS 30.d

Key IFRS vs. U.S. GAAP differences in cash flow classification:

  • Interest received: GAAP = CFO; IFRS = CFO or CFI
  • Interest paid: GAAP = CFO; IFRS = CFO or CFF
  • Dividends received: GAAP = CFO; IFRS = CFO or CFI
  • Dividends paid: GAAP = CFF; IFRS = CFO or CFF
  • Taxes: GAAP = all CFO; IFRS = may split per transaction nature
  • Bank overdraft: GAAP = balance sheet debt; IFRS = part of cash & equivalents
中文翻譯

LOS 30.a：因應計原則，CFO ≠ 淨利。三大活動：CFO↔流動資產負債；CFI↔非流動資產；CFF↔非流動負債與股東權益。

LOS 30.b：直接法逐行調整損益表，可見實際現金收支；間接法從淨利調整，突顯淨利與現金流差異（盈餘品質指標）。CFI=處置收入＋帳面價值±損益；CFF=淨借款＋淨股權融資±股利。

LOS 30.c：間接→直接三步驟：匯總→去非現金→應計轉現金。

LOS 30.d：IFRS彈性更大，利息及股利的CFO/CFI/CFF歸類可自選；U.S. GAAP規定明確（見上表）。銀行透支：GAAP列負債；IFRS列現金等值物。

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