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Cash Flow Essay

552 words - 3 pages

a. The statement of cash flows details the actual cash generated through a specific time period, usually for fiscal year ending 20XX, for example. The cash flow statement, specifically, identifies the actual cash flowing in and out of the company and reveals how a company spends its money. Conversely, the income statement is based on the accrual method of accounting and will contain revenue, for example, that has not been received or expenses that have not yet been paid.

b. The two separate methods to prepare the statement of cash flows is the direct and indirect method. Weis Markets uses the indirect method of accounting due to the fact the company uses the accrual method of accounting and derives data from both the balance sheet and income statement. Most companies, public companies specifically, use the indirect method of accounting ...view middle of the document...

e. Cash equivalents are current, highly liquid assets that can include U.S. government Treasury bills, bank certificates of deposit, banker’s acceptances, or other money market instruments.

f. Net income does relate to a company’s actual cash flow. Since net income is derived from the accrual basis of accounting, net income and non-cash items, such as depreciation, depletion, and amortization, is added back to net income to obtain actual cash flow.


h. The Company’s net cash flow from operating activities shows a net positive cash flow for the consecutive three years for 2005, 2006, and 2007, although it decreased slightly in 2007. The decrease in the net cash from investing activities from 2006 to 2007 indicates the Company invested less in PP&E and marketable securities than prior year 2006. The Company’s net cash from financing activities remained consistent for years 2005, 2006, and 2007. The activities in the Company’s financing section are constant and predictable in the three year comparison.

i. Free cash flow measures a Company’s operating cash flow available less fixed asset additions to maintain current productive capacity. The cash flow from operating activities for Weis Markets was $85,097 in 2007. The statement of cash flows indicated the cash invested in PP&E was $64,233. See below for the three year comparison.
| 2007 | 2006 | 2005 |
Cash flow from operating | 85,097 | 99,842 | 104,402 |
Investments in fixed assets | 64,233 | 99,975 | 55,468 |
Free cash flow | 20,864 | (133) | 48,934 |

Weis Markets generates enough free cash flow to maintain current productive capacity aside for the small decrease in 2006.
j. Weis Markets anticipates further growth and with positive free cash flow in 2007, the Company can fund capital expenditures internally without generating debt and ultimately, generate consistent and actual income from within.

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