Objectives: Chapter Sixteen
The following learning objectives for this chapter map to the curriculum design for our online university-level courses. These courses are offered through Utah State University, and result in the awarding of up to 6 hours of highly transferrable college credit. To learn more, check out the classroom link.
Tools for financial statement analysis.
Know the liquidity ratios: current ratio and quick ratio.
Know the debt service ratios: debt to total assets, debt to total equity, and times interest earned.
Know the turnover ratios: accounts receivable turnover and inventory turnover.
Know the profitability ratios: net profit on sales, gross profit margin, return on assets, and return on equity.
Know other indicators: EPS, P/E, dividend rate/yield, dividend payout ratio, and book value per share.
Understand the importance of monitoring trends in the relationships between various financial statement components.
Evaluating cash flow and the statement of cash flows.
What is the purpose of a statement of cash flows?
Understand the importance of the statement of cash flows in providing information about business solvency.
What three categories make up the major body of the statement of cash flows, and what other information is to be presented?
Define the form and content of the operating activities section.
Define the form and content of the investing activities section.
Define the form and content of the financing activities section.
Identify investing and financing activities that do not affect cash.
The direct approach to preparing a statement of cash flows.
Be able to calculate cash received from customers.
Be able to calculate cash payments for merchandise.
Be able to calculate cash payments for selling and administrative expenses, and cash payments for interest and income taxes.
What items found on an income statement tend to be ignored in the preparation of a statement of cash flows?
Know what is typically included in the investing and financing activities section of a statement of cash flows.
Be able to reconcile net income to cash flows from operating activities.
Know how to prepare a statement of cash flows under the direct approach.
The indirect approach to presenting operating activities.
Understand the difference between the direct and indirect approaches to presenting the statement of cash flows.
How are noncash expenses dealt with in the preparation of a statement of cash flows prepared under the indirect approach?
How are gains and losses dealt with in the preparation of a statement of cash flows prepared under the indirect approach?
Know how to prepare a statement of cash flows under the indirect approach.
Using a worksheet to prepare a statement of cash flows.
Be able to use a worksheet to facilitate preparation of a statement of cash flows.