Subject

Index of concepts

1. Aa to Az
2. Ba to Bz
3. Ca to Cz
4. Da to Dz
5. Ea to Ez
6. Fa to Fz
7. Ga to Gz

8. Ha to Hz

9. Ia to Iz

10. Ja to Jz

11. Ka to Kz

12. La to Lz

13. Ma to Mz

14. Na to Nz

15. Oa to Oz

16. Pa to Pz

17. Qa to Qz

18. Ra to Rz

19. Sa to Sz

20. Ta to Tz

21. Ua to Uz

22. Va to Vz

23. Wa to Wz

24. Xa to Xz

25. Ya to Yz

26. Za to Zz

: Investment Analysis

Chapter/Topic: Financial Statement Analysis

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Concept Definition and Explanation

Discounted cash flow valuation techniques use cash flow as the basis for valuing a security. Cash flow statement or Statement of cash flows is now made a mandatory statement to be provided by corporate concerns to their existing investors. Prospective investors in the secondary market of securties also use the same information for their investment and trading decisions.

The statement of cash flows has three sections:

1. Cash flow from operating activities

2. Cash flows from investing activities

3. Cash flows from financing activities.

1. Cash Flows from Operating Activities

In this section, the sources and uses of cash that arise from the normal operations of a firm are given as line items of the statement.

The sum net income, noncash expenses minus non cashsrevenue and net decrease in work capital items provides a positive cash flow figure from operations.

2. Cash Flow from Investing Activities

Business firms keep investing in physical assets as well as financial assets. Increases and decreases in noncurrent assets or accounts are considered investment activities. These activities normall use resources and hence decrease cash flow. But sometimes significant asset sale can give a positive figure or increase cash flow of the company

3. Cash Flows from Financing Activities

Bond and stock issues act as sources of funds. Payment of bonds and repurchase of shares and payment of dividends are uses of funds. Sources of funds and uses of funds in the financing activity are shown in this section.

For the exhibit of of statement of cash flows of IBM statement of cash flows of IBM

References:

Reilly, Frank and Keith Brown, Investment Analysis and Portfolio Management, 7th Edition, Thomson-South Western, 2003

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