Measuring Performance
This article explores cash flow measurement, summarizing its inflows and outflows through three key activities. It highlights the presentation of cash flow information using two GAAP formats: the direct and indirect methods. The primary distinction lies in how cash flow from operations is constructed, while cash flows from investing and financing activities remain consistent across both methods. Using The Walt Disney Company as an example, we delve into how Disney allocated its cash—primarily for acquiring long-term assets and returning capital to shareholders. The article emphasizes the critical role of operating activities as the lifeblood for a company's longevity.
Measuring Performance
E N D
Presentation Transcript
Measuring Performance Cash Flow
Cash Flow Information Summarized by inflows and outflows into three key activities
Presenting Cash Flow Information • Two GAAP formats • Direct method • Indirect method • Difference is how the cash flow from operations section is constructed • Cash flow from investing activities and cash flow from financing activities are the same under both methods
Example The Walt Disney Company Where did Disney obtain and spend its cash?
Disney used excess cash from operations To acquire long-term assets To buy back stock and pay dividends
Direct and Indirect Method Comparison Direct Method Indirect Method Only the operating activities sections differ
Cash Flow and a Company’s Life Cycle • Operating activities • Most important section • Reflects the lifeblood of a company • Principal source of financing for long-term survival
