ACC homework ch.3

Chapter 3 Submission AssignmentDiscuss how the statement of cash flows integrates into the above six steps of analysis. The statement of cash flows gives an understanding how the firm has changed during the period of time from the cash account standpoint (relative to reported profitability). Incorporating analysis of the statement of cash flows is an integral part of the six-step process of financial statements.Step one >Identify the Economic Characteristics of a Business:
When comparing cash flows from operating, investing, and financing activities found in the cash flow statement one can determine the company’s stage in the life cycle. In the introductory stage companies exist by financing as they build their operations with a goal to generate cash. In the growth stage, companies are profitable, but they require extensive external capital to keep funding their expansion. In the mature stage, companies may achieve less impressive profit margins, but they become their own net generators of cash. In the declining stage, companies reach a point at which deteriorating cash flows from operating and investing activities cause them to become net cash users.Step two > Identify the Strategy of the Firm:
The statement of cash flows identifies company’s strategies by showing how it is actually generating and using its cash. For example, the company might be engaging in organic growth, meaning there will be positive and large cash flows from operations. In contrast, company can also choose inorganic growth, which involves joining another company through a merger or an acquisition, therefore reporting significant cash outflows in investing activities, and possible large cash inflows from financing activities. Step three > Adjust the Financial Statements for Nonrecurring, Unusual Items:
Information about one-time gains or losses, and discontinued operations is useful when trying to analyze the cash flow statement as it can reveal the extent to which…

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