Cash Flow Statements: Financial Due Diligence for a Strategic Acquisition

by: Greg Miller, Hal White

Publication Date: September 24, 2012
Length: 6 pages
Product ID#: 1-429-179

Core Disciplines: Accounting/Finance

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Teaching Note

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Description

This case is a critical introduction, for business students, to the significance of cash flow statements. First students evaluate the cash flow statements of four “mystery” companies and recommend one for an acquisition. After making a recommendation in class, students are given more information, namely risk assessments and audit opinions, and reevaluate their recommendations. Finally, students learn the surprising identities of the “mystery” companies. Note that students should not view Cases (B) and (C) prior to completing the homework. Cases (B) and (C) are found in the case teaching note that is available only to registered faculty.

Teaching Objectives

After reading and discussing the material, students should:

  • Realize that there are three classifications on the cash flow statement.
  • Accept that information across the cash flow statement classifications allows for a fuller understanding of the company.
  • Explain that a cash flow statement is just one component of the financial statement information and can perhaps be misleading without additional information.
  • Determine that supplemental information in annual reports can be very valuable to investors.
  • Realize that it is important to understand the historical context behind a company and its industry.