Chapter 16, Problem 9BTN

To determine

Concept Introduction:

Cash Flow: Cash flow is the net effect of inflow and outflow of cash. A positive cash flow shows the surplus of the cash and a negative cash flow shows the deficit of the cash in the business.

Cash Flow statement:

The Cash flow statement shows the movement of cash during a particular period. The Cash flows are categorized into three categories as follows:

• Cash flows from operating activities

• Cash Flows from investing activities

• Cash flows from financing activities

(Note: Cash flows from operating activities can be prepared using direct or indirect method)

Price Earnings Ratio:

The price earnings ratio shows the relationship between price of the share and earnings per share. It is calculated with the help of following formula:

$\text{Price Earnings Ratio=}\frac{\text{Market price per share}}{\text{Earnings per share}}$

Requirement-1:

To discuss: The definition of Cash flow given by Fool’s School

To determine

Requirement-2:

To discuss: The importance of EBIT for analysts

To determine

Requirement-3:

To write: A report on the Fool’s ratio