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【正文】 This procedure confirms to the cash equation in which increase (positive change) in current assets other than cash decrease cash flow from operation. Indirect method SCF reconciles ine with cash flow from operation The indirect method: Net ine + depreciation ? Increase in current assets accounts + decrease in current assets accounts ? decrease in current liabilities accounts + increase in current liabilities accounts = Cash flow from operation Notes to financial statements on cash flows Is cash the king? Cash is the ultimate payoffs to capital providers Established finance theory told us the the value of a firm is the present value of all its future dividends Is cash the king? Earnings do not always go handinhand with cash flows Operational reason: a growing firm can have fast growth in earnings, but due to the expansion, it is consistently short of cash。 a declining firm may have declining earnings but throw out large amount of cash due to lack of investing opportunities Earnings management reason:A firm may manage the noncash earnings to increase earnings, but not to increase cash flow. Cash flow pattern for different firms Cash flow from: A B C D Operation $ (3) $ 7 $ 15 $ 8 Investing (15) (12) (8) (2) Financing 18 5 (7) (6) Net CF 0 0 0 0 New, growing firm Growing less rapidly Mature, stable firm Declining firm Is cash the king?Sloan [1996] Accounting Review Is cash the king?Sloan [1996] Accounting Review Is cash the king?Sloan [1996] Accounting Review Is cash the king?Barth el al. (2023) Investing Motto You can pocket cash, but you can not pocket earnings! myself
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