Page 114 - Finance for Non-Financial Managers

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The Cash Flow Statement: Tracking the King
Other Examples of Investment Items
There are other kinds of transactions that would appear in this
statement if the company engaged in them. Notable examples 95
include the following:
• acquiring or selling off other companies, subsidiaries, or
business segments
• purchasing land for future expansion
• buying or selling long-term investment assets
Cash from Financing—Capitalizing the Business

Financing is activity to raise money to pay for operations and
investments when operations alone do not generate sufficient
cash. When a company is expanding and needs more cash than
it can raise internally, outside financing is an option. Selling
stock in the company to investors, borrowing money from
banks or other lenders, and repaying borrowed money are all
activities involved in financing.

Increase in Bank Debt
Wonder Widget has succeeded in borrowing $7,500 from a
bank, perhaps all it could get to help with the equipment pur-
chase. We can’t tell the purpose of the loan by looking only at
this report, but we can see that it resulted in an increase in cash
during the month.
Of course, if we look further we can see if the company
actually borrowed more than $7,500 and used some of that
cash increase to repay other loans, which would reduce cash.
This line shows the net result of all such transactions, although
the report could just as easily have two lines, one for new
money borrowed—an increase in cash—and another line for
repayments to the bank—a decrease in cash.
How do we answer this analysis question? A quick look at
the Wonder Widget balance sheet from Chapter 3 reveals it does
have short-term bank loans on the books, so it likely made pay-
ments on those loans, which would appear in this section of the