Page 112 - Finance for Non-Financial Managers

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The Cash Flow Statement: Tracking the King
as Wonder Widget apparently did with $28,500 of its cash, the
result is a lower payables balance at the end of the month than
at the beginning and net income is adjusted downward; a nega-
tive adjustment shows that this payment activity reduced cash.
If the company had ended the month with higher accounts
payable than at the beginning, it would have effectively bor-
rowed more money from its creditors than it needed to pay the
month’s expenses; the adjustment would be a positive one for
the amount of cash thus raised. Again, the change in accounts
payable from beginning to end of the month is a quick way to
calculate the amount of this adjustment, whether it increased or
decreased cash available to the company.

Cash for Investing—Building the Business
Investing is concerned with plowing back into the business some
of the cash generated by the business in order to grow. Growth
investment can include buying equipment for expansion, buying
or selling investment assets, and other activities that enable the
company to increase its ability to do more business.

Capital Expenditures
The most common description you’re likely to see in this sec-
tion is the amount spent
for equipment used in the
Capital expenditures A
business, typically called term used to describe
capital expenditures. Such amounts spent for all fixed
expenditures for the assets assets (as discussed in Chapter 3) that
used in the business are not charged to expense when pur-
require cash, but are not chased, but are recorded on the com-
pany’s balance sheet—that is, they’re
charged to income. (Refer
capitalized—and then depreciated over
to the discussion of depre-
the amount of time they are used by
ciation above.) Therefore
the business.Also may be identified by
the cash paid out for them the shorthand phrase “CapEx.”
is shown here as a reduc-
tion in cash. In our example, Wonder Widget bought $45,000 in
equipment for use in its operations and paid cash for it. Since