Principles of Corporate Renewal, Second Edition by Platt Harlan D.;

Author:Platt, Harlan D.;
Language: eng
Format: epub
Publisher: University of Michigan Press

• cash receipts do not equal recognized revenue

• cash expenditures do not synchronize with revenues

• investing and financing activities produce additional cash inflows or outflows

In the statement of cash flows, cash flow is derived separately for each category, and then the parts are combined into a total net change in cash position, as seen in table 5.18.52 A statement of cash flows for Jersey Foods, Inc., in 2001 and 2002 is presented in table 5.19

Jersey Foods experienced a dramatic negative turnaround in 2002 as its healthy annual profits plunged and became a loss following trouble with contaminated products. What about Jersey Foods’ cash flow? The most elementary measure of cash flow combines net income and any noncash charges against income, such as depreciation, depletion, or amortization. On that simple basis, Jersey Foods’ cash flow is positive: negative $74,000 plus $103,000. The formal analysis in the statement of cash flows refers to this sum as working capital from operations. Balance-sheet activity also affects cash flow. Jersey Foods had large changes in its accounts receivables, inventories, and accounts payable. Uses of funds to increase current assets decreases cash flow. Similarly, sources of funds that expand current liabilities increase cash flow. Cash flow from operations equals the sum of working capital provided by operations and balance sheet activities affecting cash flow.

TABLE 5.18. Schematic for the Statement of Cash Flows

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