Cash flow statements

Get Ready!
0 Before you read the passage, talk about
these questions.
1 What is a cash flow statement?
2 What are some of the things that go on a cash
flow statement?

c.) Cash flow from O~erations Sometimes, an income When a sale is made, it
c Cash generated from sales 100,000 statement shows huge net often takes months for
;:: Pa:iments to sueeliers and emelo:iees (70,000)
en income. But the cash flow payment to arrive. A
en ~
G.) Pa:iments on debts (15,000)
Pa:iments on taxes (5,000) statement shows negative company may have
-~

--
'i: ("')
Net cash flow from operating activities 10,000 cash flow. How can this be? generated $500,000 in
CL a; Cash flow from Investing sales, but only received
Cash flow statements
~
G.)
Pa:iments for new investments (9,000)
c show the inflow and $100,000 in payment. The
Dividends received 2,000
w
c
~ Net cash flow from investing (7,000) outflow of cash. This income statement count~
0;::
t:rl Cash flow from Financing
.!:; includes: $500,000 in revenue. But
c_c::: Debt
-o~ increases 4,000 the cash flow statement
mu.. Cb Dividends eaid to stockholders (8,000) • revenues and expenses records only cumulative
CQ ~ Net cash flow from Financing Activities (4,000) • cash distributions to
..c ~ Net cash flow cash - the $100,000 in
:c: ._
~
a:u .s Cash balance, beginning of }'ear
(1,000)
4,000
owners
• dividends paid to
proceeds.
Cash balance, end of }'ear 3,000
stockholders
• financing activities

Reading Because income statement counts revenue,

f) Read the cash flow statement and journal article. ......_._
but the
__ cash
__ !!9!11!!!--;;~:::~::
flow statement records only
Then, mark the following statements as true (T) or cumulative cash.
false (F). 0
Fill in the blanks with the
correct words and phrases
1 _F Cash flow statements only record cash.
from the word bank.
2 F_ Dividends are not included in cash flow statements.
3 _F Income statements reflect current status better than
cash flow statements. inflow stockholder
cash distributions
Vocabulary outflow dividends
8 Match the words (1-5) with the definitions (A-E).
1 The company makes to
1 C
_cash flow 4 A
_ financing activities the owners every month.
2 D
_generate 5 B
_cumulative 2 Every stockholder
owns a tiny
E
3 _proceeds portion of the company.
3 Any time money is spent, it is
A receiving money from investors or creditors recorded as a(n) _ __
B created by incremental additions 4 The company pays quarterly
C the process of money moving into and out of a company ___ to the stockholders.
D to make or create 5 Money received for sales is a(n)
E money earned from a sale ___ of cash.
20
0 " Listen and read the statement and Speaking
article again. Why might a cash flow
statement and an income statement have
0 With a partner, act out the roles below
based on Task 7. Then switch roles.
a big balance difference?
USE LANGUAGE SUCH AS:
Listening Could I talk to you for a second?
The cash flow statement only shows ...
0 " Listen to a conversation between a
The cash flow statement only counts ...
manager and an accountant. Choose the
correct answers.
1 What is the dialogue mostly about?
Student A: You are a manager. Talk to Student
A money generated from sales B about:
B accounts receivable payments • a cash flow statement
C errors on an income statement • low/high figures
D contents of cash flow statements • what the figures mean

2 The cash flow statement only counts

Student B: You are an accountant. Answer
A net income C cumulative cash
Student A's questions.
B sales amounts D accounts receivable

0 " Listen again and complete the Writing

conversation.
0 Use the conversation from Task 8 to
Manager: Hi, David. Could I talk to you for a complete the email. Make up names for
second? the CPA and Manager.
what's
Accountant: Sure. 1 _ __ up_?
Manager: Well, our income statement shows a
net income of $200,000.
sounds CPA -
Accountant: That 2 _ _ about right. FROM: - -- - - -
Manager: But the cash flow statement shows TO: _ _ _ --~ Manager - - -
only $100,000 3generated
_ _ from sales. ·1 about the different
Accountant: Oh, well, the cash flow statement I received your .ema1 e statement and the
only counts cumulative cash - the numbers on the incom L t me explain why
4_actual
_ cash we spend and receive. cash flow statement. e
they are different.
Manager: So ... Are you 5 telling
_ _ me that we
haven't received some of the
payments on our accounts receivable?
Accountant: Exactly. But our accounts receivable
should 6 make
___ up _ for it by next
month.

21
 Describing change

Between January and March, revenue hovered around

$35,000. In April, the cost of goods went up slightly. As
a result, we increased prices. This had a negative effect
soooorr------______J
on sales. In fact, revenue plummeted sharply to $20,000.

~
30000
From April to June, revenue stabilized and steadily 20000
increased. In July, sales dropped dramatically from 10000
$28,000 to just $19,000. This was the result of a new
competitor opening up across town.
GRAND We recovered quickly in September just before the busy

T8Y
COMPANY
season. This was partly due to a sharp decline in cost of
goods. It allowed us to lower our prices. From October
through December, we experienced our usual seasonal
increases.

Vocabulary
E) Match the words (1-5)
with the definitions (A-E).
1 C
_steadily 4 E
2 A_ stabilize 5 D
_ dramatically
B
3 _plummet

A to stop changing
B to drop very far quickly
C without much change; consistently
D with great, rapid change
E to change in a small way
1 What words describe changing amounts?
2 What are some of the ways to say something 0 Fill in the blanks with the correct words
increased or decreased? from the word bank.

Reading ~ BANK

hovered recovered declined sharply

f) Read the graph and the company's annual
report. Then, mark the following
1 The company recoveredfrom its losses.
statements as true (T) or false (F).
2 Sales declined and the company went out
1 _F Revenue usually increases during a certain of business.
season.
3 Net income had minimal movement; it
2 F
_ Revenue dropped after a new store opened. _hovered
_ _ at a moderate level.
3 F
_ The company's revenue declined from April 4 Due to a large increase in costs, profits fell
to June. sharply

22
0 g Listen and read the annual report Speaking
again. What enabled the company to drop
their prices?
0 With a partner, act out the roles below
When a new based on Task 7. Then switch roles.
competitor opening up across town. USE LANGUAGE SUCH AS:
Listening
Wow. Sales revenue really ...
0 g Listen to a conversation between a
I'm not sure why.
manager and an accountant. choose the
correct answers. It's probably due to ...

1 What is the dialogue mostly about?

A the effects of competition on setting prices Student A: You are an accountant. Talk to
B reasons why the company must decrease Student B about:
prices • rising/falling revenue
C the results of the holiday season price • causes
increases
D the causes of changes in sales revenue Student B: You are a manager. Answer Student
throughout the year A's questions.

2 What caused an additional increase in sales

revenue?
A a decrease in prices
B an increase in advertising
C an unusually busy holiday season
D a competitor going out of business
Writing
0 Use the graph and the conversation from
Task 8 to fill out the sales report. Make up
a name for the accountant.

0 g Listen again and complete the

conversation.

Accountant: Here's the sales report, Mr. Porter.

Prepared by _ _ _ _ __
Manager: Ah, yes, thank you. Wow. Sales
revenue really 1 in April.
Between January and March, sales revenue _ _
Accountant: Yes, it did. I'm 2 why.
Manager: Well, it was 3 a result of our
price increases.
Accountant: That 4 . But why did
In April, the cost of goods increased _ _ __
sales increase so much from October
to December? As a result, we increased prices _ _ _ _ __
sales revenue plummeted _ _ _ _ _ _ __
Manager: Well, that's the holiday season.
Accountant: Yes, but I've never seen sales go
5 . What else In July, sales revenue, although previously stabilized,
caused it?
This was a result of _ _ _ _ _ _ _ _ __
Manager: It's probably 6 Mike's
Toy Shop going out of business. They
were major competition.
From October through December, _ _ _ __

23
 Gleaning information from financial
statements
Get Ready!
0 Before you read the passage, talk
about these questions.
1 How do accountants use records to
determine the health of companies?
2 What are some of the ways they
interpret financial records?
Reading
f) Read the email. Then, choose
the correct answers.
1 What is the passage mainly about?
A opportunities for growth
B ways to interpret financial records
C methods for reducing return on sales
D options for increasing return on equity
2 Which equation is NOT presented in the email?
A Return on Equity
B Return on Sales
C Return on receivables
D Year-Over-Year Growth
3 What can be inferred about the company's
customers?
A They keep detailed records.
B Some expect a high return on sales.
C They interpret financial information.
D Some do not pay for their purchases.
24
Beck Johnson, Human esourc s; Charles St nley, Sales;
1colas Long, ar eting
Good morning! Many employees complain about keeping
records. We do keep lots of records, but there's a good
reason. We need them to assess the health of the
company. Here are some ways we interpret your records.
Return on Sales
Net Income .;. Revenue = Return on Sales
Return on Equity
Net Income .;. Equity = Return on Equity
Yea Over-Year Growth Rate
Profit 2011 .;. Profit 2010 =Year-Over-Year Growth Rate
These equations and others help us examine factors that
eat away at our profits. Last year we had thin profits.
Because we had accurate records, we found out that it
was due to uncollectible receivables.
Vocabulary
6) Match the words (1-5) with the definitions
(A-E).
1 _assess 4 _ return on sales
2 _ factor 5 _ return on equity
3 _thin
A not having much substance; small in quantity
B net income in comparison to total revenue
C something that has an influence on something
else
D net income in comparison to the value of the
company
E to test something
0 Fill in the blanks with the correct words Speaking
and phrases from the word bank.
0 With a partner, act out the roles below

~ BANK
interpret year-over-year growth rate
based on Task 7. Then switch roles.
USE LANGUAGE SUCH AS:
uncollectible eat away at I'm curious. Why do we ...
Because ... Why do you ask?
1 The _ _ _ _ _ shows that the company is
I'd rather ... than ...
expanding.
2 The company went out of business. Its debts
are _ _ _ __
Student A: You are a salesperson. Talk to
3 It's the accountant's job to _ _ _ _ _ the Student B about:
financial records.
• sales reports
4 Declining sales will definitely _ _ _ __
• their purpose
profits.
• their uses

0 g Listen and read the email again. How

is year-over-year growth rate calculated? Student B: You are an accountant. Answer
Student A's questions.

Listening
0 g Listen to a conversation between a Writing
salesperson and an accountant. Mark the
following statements as true (T) or false (F). 0 Use the email and the conversation from
Task 8 to fill out the financial statement.
1 _ The woman fills out a sales report monthly.
2 _ The man thinks paperwork is a waste of time.
1:'1N
3 _ The woman prefers paperwork over selling. ,qNc
l,ql.
8 g Listen again and complete the s.,.A
..,.,.~

conversation. Profit 2010 11,750 ff.?~N

Profit 2011 13,500 .,.
Salesperson: Here's my weekly sales report. Sales revenue 56,500
Accountant: Wonderful. Thank you. Net income (profit) 13,500
Salesperson: I'm 1 . Why do we have to Owner's equity 41,000
keep such 2 records?
Accountant: Because they help us 3 the Return on Sales
company's health. Why do you ask?
Salesperson: Well, it 4 me down. I'd
rather 5 _ _ _ _ _ _ selling
than doing paperwork.
Return on Equity
Accountant: I know what you mean. It takes time to
6 . But it's worth it.
Salesperson: How so?
Accountant: Accurate records help us see if
anything is eating away at our profits. Year-Over-Year Growth Rate

25