Cash Flow Cycle Presentation @ Garg

CASH FLOW CONTROL (Self Study)

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Statement of Cash Flows •Provides information on cash flows from operations, investing activities, and financing activities. •The statement of cash flows relates the firm's income statement to changes between the firm's beginning-of-period and end-of-period balance sheets. •The objective of the statement of cash flows is to show the sources of cash and all the uses of cash during the accounting

Cash Flow Statement Statement of Cash Flows for the Period 1/1/xx to 1/1/xx+l Cash flow from operations (CFO) + /— $xx Cash flow from investing (CFI) + /- $yy Cash flow from financing (CFF) + /$zz Change in the cash account ∆cash Beginning of period cash +

Classifying Cash Flows • Operational Cash Flows • Investing Cash Flows • Financing Cash Flows

Operating Cash Flows • • • • • • • • • • •

Receivables. Inventories. Prepaid expenses. Taxes, interest, and miscellaneous payables. Deferred taxes. Cash sales. Cash cost of sales. Cash general and administrative expenses. Cash taxes. Interest paid and received. Dividends received.

Investing Cash Flows • Purchases of property, plant, and equipment. • Investments in joint ventures and affiliates. • Payments for businesses acquired. • Proceeds from sales of assets. • Investments (or sales of investments) in marketable securities.

Investing Cash Flows • Cash dividends paid. • Increases or decreases in short-term borrowings. • Long-term borrowings and repayment of long-term borrowings. • Stock sales and repurchases.

Cash flow control • To ensure that funds are available to support the company’s desired scale of operations. • To maintain adequate liquidity. • To keep credit risk, foreign currency risk and interest rate risk within acceptable limits. • To contribute towards company profits from investment of surplus

Organizing for cash flow Collecting cash. Authorizing payments. Making payments. Bank accounts and transferring funds between accounts. • Arranging overdraft facilities and loans. • Investing cash surpluses. • Foreign currency transactions. • • • •

Methods for Cash Flow Control • Netting • Pooling • Reinvoicing Center

Internal Controls of Cash • • • • • • • •

Organization and procedural controls Authorization Physical Controls Segregation of duties Personnel controls Accounting and arithmetic controls Supervision Management controls

Change In Cash

∆cash = ∆liabilities + ∆equity -∆noncash assets

Cash Flow Cycle There is a continuing business cycle of buying and selling, and paying for purchases and being paid for sales. The cash cycle starts with the payment for raw materials and ends with the receipt of payments from customers.

Measuring cash cycle time • Sampling • Ratio Measurement

Sampling

• Make Profiles of Customers/Supplier. • Calculate Average of each group.

Ratio Measurement Raw material stock turnover + Production Cycle + Finished goods turnover = Stock turnover + Debtor days - Average time to pay suppliers = Cash Cycle

Just in Time • Just in time production is driven by demand, and items are manufactured only when they are needed. • Just in time purchasing is the matching of purchases as closely as possibly with usage, so that stocks of raw materials and components are reduced to almost zero.

Cash Flow Time Line • The time line is a horizontal line divided into equal periods such as days, months, or years. Each cash flow, such as a payment or receipt, is plotted along this line at the beginning or end of the period in which it occurs.

Working Capital Stocks +Debtors -Creditors =working capital

Liquidity • The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. • The ability to convert an asset to cash quickly. Also known as "marketability".

Measurement of Liquidity • Current Ratio • Quick Ratio • Cash Ratio

Cash Management Audit • Cash management audit is simply a term for a thorough and systematic investigation of the systems and controls for cash management. The purpose of an audit should be to consider whether the cash management system is efficient and whether it is suitable for current conditions.

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