Case 3 / 183 Entry

Walk Me Through the Cash Flow Statement

Accounting & Financial Statements

The prompt

“Walk me through the cash flow statement.”

📋 What you're given

"Walk me through the cash flow statement." This is the natural next step after the income statement and balance sheet — and the strongest answers reconcile Net Income to an actual cash balance with real numbers. Use the figures below for Atlas Manufacturing Inc. — continuing from Case 1 and Case 2 — to build out its cash flow statement for the same fiscal year.

1. Task Overview

Task: explain how the cash flow statement reconciles Net Income to an actual cash balance across its three sections, then demonstrate that using the figures for Atlas Manufacturing Inc. below.

Step 1: Given Data for Atlas Manufacturing Inc.

The following figures are reported for the same fiscal year as Cases 1 and 2.

Line ItemAmount
Net Income$52.5m
Depreciation & Amortization (D&A)$30.0m
Increase in Accounts Receivable$15.0m
Increase in Inventory$10.0m
Increase in Accounts Payable$8.0m
Capital Expenditures (CapEx)$45.0m
Debt Repayment$12.0m
Dividends Paid$5.0m
Beginning Cash Balance$76.5m

Step 2: Cash Flow from Operations (CFO)

Show CFO Formula

CFO = Net Income + D&A − Increase in Accounts Receivable − Increase in Inventory + Increase in Accounts Payable

Using this formula, compute CFO.

Step 3: Cash Flow from Investing (CFI)

Show CFI Formula

CFI = −Capital Expenditures (CapEx)

Using this formula, compute CFI.

Step 4: Cash Flow from Financing (CFF)

Show CFF Formula

CFF = −Debt Repayment − Dividends Paid

Using this formula, compute CFF.

Step 5: Ending Cash Balance

Show Ending Cash Balance Formula

Ending Cash Balance = Beginning Cash Balance + CFO + CFI + CFF

Using this formula, compute the Net Change in Cash and the Ending Cash Balance — and check it against the Cash line on the balance sheet from Case 2.

💡 Model answer

Try answering out loud first — then reveal the model answer and compare.

⚠️ Common mistakes

  • Forgetting that the statement starts from Net Income, not Revenue — it's a reconciliation, not a standalone calculation
  • Getting the sign wrong on working capital changes — e.g., subtracting an increase in Accounts Payable instead of adding it
  • Treating D&A as if it were extra cash rather than a non-cash add-back that reverses an expense that never left the bank account
  • Putting CapEx in Operating instead of Investing, or forgetting to make it negative
  • Stopping at the Net Change in Cash and forgetting to add the Beginning Cash Balance to get the figure that actually ties to the balance sheet

🔁 Follow-up questions

Previous Case 2: Walk Me Through the Balance Sheet Next Case 4: Connect the Three Statements

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