The Importance of Tax and Return on Investment in Cash Flow Statements

Do You Believe That The Cash Flows From The Sale Of An Investment Should Also Include The Tax Effect Of The Sale? Explain.

Do You Believe That The Cash Flows From The Sale Of An Investment Should Also Include The Tax Effect Of The Sale? Explain.

Do You Believe The Cash Flows From Investing Activities Should Include Not Only The Return Of Investment, But Also The Return On Investment, That Is The Interest And Dividend Revenue? Explain.

Suppose a Company Lengthens The Time It Takes To Pay Suppliers. How Would This Affect The Statement Of Cash Flows? How Sustainable Is The Change In Cash Flows From This Practice?

Cash flow investments are the product of a firm investing in or disposing of long-term reserves. Payments for the acquisition of property, houses, equipment and other investment assets and cash proceeds from the disposal of land, buildings, equipment, and other investment assets are examples of investment cash flows. Tax flows from the selling of an investment are reported in the financial statements but are related to the form of operation of the investment itself. Transactions may be categorized into three categories of transactions that are contained in the cash balance statement: running, spending, and funding. Operating cash flows originate from regular income-generating activities, such as tax cash collections and cash disbursements to pay for expenses. Operating cash flows, for example, include cash from revenue and cash used to buy goods to pay for operating costs such as compensation and services. Operating cash flows also include debt and dividend interest rate cash flows, and income tax.

Cash flow funding comes from a firm generating money by loans or equity and repaying debt. Examples of cash flow finance include cash from the issuing of lending instruments such as notes or bonds payable, cash from the issuance of capital stocks, cash from the allocation of dividends, principal redemption or repayment of notes or bonds payable, or the acquisition of treasury stocks. Cash flows related to asset adjustments can be reported on the Stockholder's Equity Statement and cash flows related to long-term liabilities can be identified on the balance sheet by changes in long-term liabilities.

Return on investment should also include cash flows from investing operations. Dividend and interest income occurs as a product of the acquisitions made by the firm and thereby represents cash flow from a company's investment activities.

Growing the duration of payables increases the cash flow from activities. For the company, this may be helpful since it could be a cheap source of funding, but it is simply a one-time move. The payables duration should not be permanently extended and if the payables period becomes too long, it can adversely affect the credit rating of the firm.