statement of cash flows

A firm's financial statement that summarizes its sources and uses of cash over a specified period.

The net addition to cash is just the difference between sources and uses, and our $14 result here agrees with the $14 change shown on the balance sheet.

This simple statement tells us much of what happened during the year, but it doesn't tell the whole story. For example, the increase in retained earnings is net income (a source of funds) less dividends (a use of funds). It would be more enlightening to have these reported separately so we could see the breakdown. Also, we have only considered net fixed asset acquisitions. Total or gross spending would be more interesting to know.

To further trace the flow of cash through the firm during the year, we need an income statement. For Prufrock, the results for the year are shown in Table 3.2.

Notice here that the $242 addition to retained earnings we calculated from the balance sheet is just the difference between the net income of $363 and the dividends of $121.

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