Another Direct Method Statement of Cash Flows Company!

Thanks to Pat Finnegan, who works with Fitch and has helped us as a workshop leader, for letting us know that CVS is another company that uses the direct method for their statement of cash flows in their Form 10-K.

It is pretty neat and more understandable when we see line items such as “Cash receipts from customers” and “Cash paid for inventory and prescriptions dispensed by retail pharmacies” on the statement of cash flow.

Perhaps more interesting and useful, in CVS’s 10-Kcheck out their MD&A liquidity and capital resources discussion.  The presentation is much more understandable when based on direct method information such as changes in cash receipts from customers rather than items like changes in accounts receivable.  Small wonder that FR 72suggests that even companies using the indirect method would benefit if they developed direct method information for MD&A.  From Section IV.B.1:

  1. Operations

The discussion and analysis of operating cash flows should not be limited by the manner of presentation in the statement of cash flows.  Alternate accounting methods of deriving and presenting cash flows exist, and while they generally yield the same numeric result in the major captions, they involve the disclosure of different types of information. When preparing the discussion and analysis of operating cash flows, companies should address material changes in the underlying drivers (e.g. cash receipts from the sale of goods and services and cash payments to acquire materials for manufacture or goods for resale), rather than merely describe items identified on the face of the statement of cash flows, such as the reconciling items used in the indirect method of presenting cash flows

Thanks again to Pat, and as always, your thoughts and comments are welcome!

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