Question

The Statement of Cash Flows provides a great deal of information to investors. Please obtain a copy of a Statement of Cash Flows under IFRS and contrast it with another company’s under GAAP. What are the major differences that you see?

Target GAAP cash flow. Nestle IFRS cash flow

Target 148.44 +0.79 (+0.54%) General Chart News & Analysis Financials Technical Forum Insights Premium Financial Summary Income Statement Balance Sheet Cash Flow Ratios Dividends Earnings TGT Cash Flow Statement Annual Quarterly Collapse All 2020 01/08 2020 01/02 2019 02/11 6 Months 2020 02/05 3 Months 284 12 Months 9 Months 1974 3281 2447 5116 1284 7117 2604 4159 1905 1245 641 178 235 -12 190 192 129 1719 309 862 -744 Period Ending Period Length: Net Income/Starting Line Cash From Operating Activities Depreciation/Depletion Amortization Deferred Taxes Non-Cash Items Cash Receipts Cash Payments Cash Taxes Paid Cash Interest Paid Changes in Working Capital Cash From Investing Activities Capital Expenditures Other Investing Cash Flow Items, Total Cash From Financing Activities Financing Cash Flow Items Total Cash Dividends Paid Issuance (Retirement) of Stock, Net Issuance (Retirement) of Debt, Net Foreign Exchange Effects Net Change in Cash Beginning Cash Balance Ending Cash Balance Free Cash Flow Free Cash Flow Growth Free Cash Flow Yield -1402 -1414 12 -2944 -3027 -557 -2360 -2403 43 -751 7 83 993 1449 -3152 -2386 -450 -332 -995 -662 -699 -682 2463 - 1330 - 1492 -330 -894 -47 2354 4707 1989 1021 -254 -587 1393 767 806 4090 1756

Answer 1

The major difference between both the cash flows is that of interest and dividends.

Under International Financial Reporting Standards (IFRS), organisations can classify interest paid, interest received, and dividends received within operating, investing, or financing activities within the statement of cash flows as per company policies on the other hand, in U.S. Generally Accepted Accounting Principles (GAAP), these cash flow items are mandatorily classified as operating cash flow items.

Some companies prefer showing these cash flows in their operating cash flows as they show increased cash generation and utilisation, thereby giving a better picture to the shareholders of company's performance.

This information also enables in assessing the organisations’s ability to generate cash inflows. These cash flows also show how an organisation is obtaining and spending cash, including information about its repayment of debt, borrowing, cash dividends or other cash distributions to investors, and other factors that may affect the organisation’s solvency and liquidity. This information also helps in understanding an organisation’s operations, evaluate its financing and investing activities, assess its liquidity or solvency and interpret other information about financial performance.