Why are companies required to prepare a statement of cash flows?

Week Four Discussion Questions

· Why are companies required to prepare a statement of cash flows? Why is the statement of cash flows divided into three sections? What does each section tell you about a company’s operations?

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· What are some common ratios used to analyze financial information? Which are the most important? What are some examples of how ratios are used in the decision-making process?

· Two popular methods of financial statement analysis are horizontal analysis and vertical analysis. What are the differences between these two methods?

· What are the differences between the direct and indirect presentation of cash flows? Why does the Financial Accounting Standards Board allow both methods? Which do you prefer? Why?

· Why must preferred stock dividends be subtracted from net income in computing earnings per share? Why is common stock usually not issued at a price that is less than par value?

What three conditions must exist before a cash dividend is paid? Contrast the effects of a cash dividend and a stock dividend on a corporation’s balance sheet.