I’m reviewing this part and still confused about some of the content - especially the indirect method… Is the following correct? Under US GAAP Dividend Payment is CFF Dividend Received is CFO Interest Payment is CFO? Interest Received is CFO In calculating CFO, why do we substract Profit while add Loss of sale (eigher land or machinery)? Isn’t Profit considered as cash inflow and Loss as cash outflow? Thx.
You’re right about the dividend/interest paid/recieved bit. As for the second part of your question, there’s already a thread on it. http://www.analystforum.com/phorums/read.php?11,862612
One more question here: To calculate CFO by indirect method, there’s an inverse relationship btwn changes in assets and changes in cash flows and there’s a direct relationship btwn changes in liabilities and changes in cash flows. But what about the relationship btwn changes in owners’ equity and changes in cash flows? For example, should we add or substract “unrealized gain/loss” from CFO? Unrealized gain/loss is part of comprehensive income which belongs to owners’ equity, right? Thx to clarify.
unrealized gains / losses are a part of owner’s equity only in the case of Available for sale securities. In case of Held for trade securities - this is a part of the Net income already. So you need to know the type of security, and then look at its impact on the cash flow statement, if any. not sure if this is a part of any LOS in L1, though.
It makes sense. Assume the unrealized gain from available-for-sale securities is $100, should we add or substract from CFO? Guess just do opposit for unrealized loss. Another confusion: Lease Fixed Asset vs. Purchase Fixed Asset via bank loan Are both considered investing activities? If so, what would be the difference of the two regarding CFF and CFI? Thx.