Eat at My Restaurant – Cash Flow (60 points) Read and complete case study 10-10, "Eat at My Restaurant" in your text. Address the following elements, which are also “required” elements at the end of...

Req a.
Difference between Net Cash provided by Operating Activities and Net Income
Cash Flow statement deals with business cash inflow and outflows and is divided into three
categories called cash from operating activities, cash flow from investing activities and cash flow
from financing activities. Cash flow from operating activities measures the cash generated and
utilized from the core operations of the business. It is generally calculated according to the
following formula:-
Cash Flow from Operating Activities = Net income after tax + Non cash expenses (Depreciation
and amortization etc) + change in working capital
Net income is the final result of a business operation for an accounting period. It is calculated
as under:-
Net Income = Total Net revenues – Cost of Sales – Operating Expenses – Interest - Tax
It is also called as the bottom line of Income Statement.
Net cash provided by operating activities differs from Net Income due to the following:-
1. Non cash expenses like depreciation and amortization reduces the net income in the
income statement and are charged to the accounting period. But these expenses have
no cash out impact, therefore, while calculating cash from operating activities these are
added back into net income.
2. Net income is calculated using the accrual accounting system whereas net cash flow
reflect the transactions on cash basis.
3. Other Incomes and expenses are included while calculating net income but in net cash
flow from operating activities does not includes these transactions.
Better Indicator of Long Term Profitability
Operating Cash Flow is the result of actual business operation and is the important indicator of
the business performance. Operating cash flow is prefer on net income due to the fact that it is
harder to manipulate than net income. The second reason is that the business which is not
generating positive net cash from operating activity can’t survive for long term because funds
are very important to meet day to day business needs and can not be afforded to meet throuth
financing or investing activites for long period.
Req b.
Yum Brands, Inc
While reviewing the data of Yum Brands, Inc., Net cash flow from operating activities decline by
30 Million in 2008 as compared to 2007 whereas the Net income has increased by 55 million in
2008 contrast to 2007.
Operating Cash Flow/current maturities of long term debt and current notes payable
Operating Cash Flow to current maturities of long term debt and current notes payable
presents the company position to meets its current debt obligations. Yum Brands Incorporation
has Rs. 60.84 times Net operating cash flow...