Discussion Question Two:
Pick a large company you like. Find their Statement of Cash Flows on their latest annual report, (not a summary, but the actual financial statement).
• Describe the three sections of cash flows and what they involve.
• For each section, tell us the total amount, if it is positive or negative, and analyze what each one tells you about the company.
• Upon studying its statement of cash flows, what does this combination of cash flows suggest to you about the firm?
• Is there any additional information that you would like to see to better understand this company? If so, what?
Guide On Rating System
Vote
I have chosen Apple Inc. and found their Statement of Cash Flows in their latest annual report (Form 10-K) for the fiscal year ended September 26, 2020.
1. The three sections of cash flows in Apple's Statement of Cash Flows are:
a. Operating activities: This section represents the cash flows from the company's core operations, primarily related to revenue generation and expenses. It includes cash inflows from sales of products or services, interest and dividend income, and cash outflows for operating expenses, interest payments, and income tax payments.
b. Investing activities: This section includes cash flows related to the acquisition or disposal of long-term assets. It involves cash inflows from the sale of investments, property, plant, and equipment, as well as cash outflows for the purchase of investments or long-term assets.
c. Financing activities: This section represents cash flows related to the company's capital structure. It includes cash inflows from raising capital (such as issuing debt or equity) and cash outflows for debt repayments, dividend payments, share repurchases, or other financing activities.
2. For Apple's fiscal year 2020:
a. Operating activities: The total amount of cash flows from operating activities was $80,207 million (positive). This positive figure indicates that Apple generated significant cash from its core operations. It suggests that the company is financially healthy and has a strong ability to generate cash from its products and services.
b. Investing activities: The total amount of cash flows from investing activities was -$73,163 million (negative). This negative figure indicates that Apple invested heavily in acquiring investments, property, plant, and equipment. It suggests that the company is focused on long-term growth and expansion.
c. Financing activities: The total amount of cash flows from financing activities was -$34,965 million (negative). This negative figure indicates that Apple paid off debt, repurchased shares, and paid dividends during the fiscal year. It suggests that the company is prioritizing returning cash to shareholders and maintaining a stable capital structure.
3. The combination of cash flows suggests that Apple is a company with strong operating cash flows, significant investments in growth and innovation, and a shareholder-friendly approach. The positive cash flow from operations indicates that the company is efficient in generating cash from its core business activities. The negative cash flow from investing activities suggests that Apple is making substantial investments to support its future growth. The negative cash flow from financing activities indicates that the company is actively managing its capital structure and returning value to shareholders through dividends and share repurchases.
4. To better understand Apple, it would be helpful to see a detailed breakdown of its operating cash flows, including the sources and uses of cash within this section. Additionally, information about the company's cash position, including cash equivalents and short-term investments, would provide a clearer picture of its liquidity and ability to meet its short-term obligations.
Got a question with my answer?
Cheapmath.com is completely free!
Asking question is free.
Getting answers is free.
+99