Cash flow statement present the inflows and outflows of cash in a business which determines the available cash that an organization has. Also, through cash flow statements, investors and other stakeholders in the business can determine the viability and profitability of a business ( Young et al., 2019) . Cash flows is categorised into investing, operating, and financing activities which in helps in determining the respective cash available for each individual activity. Besides, the cash flow statements show the utilization and sources of cash inflows and outflows separately ( Gibson, 2013) . This paper therefore uses the properties of cash flow statement to analyze Eat at My Restaurant case study.
Different business and organizations utilize cash flow staement to get information about the ability of the business to pay dividends, determine the future income generation of the business, and the ability of the business to meet its short-term and long-term obligations ( Young et al., 2019) . Cash flow stamen also show clearly the income generating activities for a business and helps in determines the viability and profitability of each income generating activity ( Gibson, 2013) . As a result, the business can come up with informed decisions on which activities to be improved or stopped. Some of the activities shown in the income stamen are investing activities which include short-term and long-term investments from business assets; operating activities which include business operations; and financing activities which include financing transactions for the business.
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The difference between net income and net cash from operating activities
Whereas income statement is made up on the basis of accrual, cash flow statements are made basis of cash. The difference between net income and net cash from operating activities is material with the major difference coming from the mode of preparation ( Gibson, 2013) . Operating activities provide higher net cash because it also includes non-cash items, payments, and receipts receved in a given period ( Young et al., 2019) . Therefore, based on the best option in determining the profitability of a business, net income is a better indicator because it factors in all expenses and revenues that business incurs in a given period.
Comments on reviewed data
The reviewed data from Yum Brands, Inc. reveals different aspects of the business. First, a look at operating cash flow/current maturities of current notes payable and long-term debt reveals a considerable increase. Also, operating activities provide net cash that shows an increase in net income and a decline in net cash from operating activities. Moreover, the data provided shows a significant decline in total debt which shows that the business is headed in the right direction. Furthermore, there is a moderate increase in cash flow per share. Lastly, from the operating cash flow, it is evident that there has been a decline in cash dividends even though it is perceived as good indicator.
On the other hand, data from Panera Bread shows mixed results. From the net cash of the business, it is evident that operating activities have made a slight increase in net cash. Also, it is evident that there has been a considerable increase in the company’s net income. Furthermore, the current assets show that current notes payable and long-term debt had no evident maturities payable for the 2010 financial year. Also, the statement reveals that the company pays no dividends to its shareholders. Lastly, it is revealed that material increase in net cash flow per share was achieved.
For the case of Starbucks, it is evident that there is a moderate decrease in net cash from operating activities whereas net income decreased. Also, there is an evident decrease in current notes payable and long-term debt. Also, total debt recorded a significant decrease whereas operating cash flow per share slightly decreased. Also, Starbucks does not pay dividends.
Potential problems in the cash flow
Following the analysis of cash flow statement of the three companies, it is evident that Yum Brands and Starbucks both recorded a decrease in net cash from operating activities in the 2007 and 2008 financial years. Also, Yum Brands and Starbucks recorded decline in total debt ratio in the 2007 and 2008 financial years. Furthermore, the operating cash flow/current maturities for current notes payable and long-term debt for Starbucks Corporation decreased in 2007 and 2008 financial years. Therefore, it evident that from the three firms, Starbucks’s cash flow staement had problems.
Reference
Gibson, C. H. (2013). Financial reporting & analysis: Using financial accounting information . Mason, OH: Cengage Learning.
Young, S. D., Cohen, J., & Bens, D. A. (2019). Corporate financial reporting and analysis .
