Cash Flow Statement

“Statement of Cash Flows” Presented by – Rajveer Singh Irfan Ahmad Pramod Kumar Ratnesh Mishra

Overview of the Statement of Cash Flows The statement of cash flows … (a) explains the reasons for a change in cash. (b) classifies the reasons for the change as an operating, investing or financing activity. (c) reconciles net income with cash flow from operations.

Defination of Cash Flow Statement Cash flow Statement (CFS) can be defined as a “Statement which summarizes sources of cash inflow and uses of cash outflows of a firm during a particular period of time (a month or a year)”.

Learning Objectives 1. To through light on specific sources of cash flow. 2. To assertain the specific uses. 3. To assertain the net change in Cash and Cash Equivalent. 4. To Help in Short-term Planning. 5. Understand the types of transactions that result in cash flows from operating, investing, and financing activities.

Contd…. 6. To analyse Financial Position. 7. To help in Divident Decision. 8. Distinguish between the direct and indirect methods of reporting and analyzing cash flows from operations. 9. Develop an ability to analyze the statement of cash flows, including the relation among cash flows from operating , investing, and financing activities for businesses in various stages of their growth.

Define the Three Classifications of Cash Flows 1. Operations – cash flows related to selling goods and services; that is, the principle business of the firm.

2. Investing – cash flows related to the acquisition or sale of noncurrent assets.

3. Financing – long term and short term cash flows related to liabilities and owners’ equity; dividends are a financing cash outflow.

Example of a Statement of Cash Flows Exhibit 4.1

Components of the Statement of Cash Flows Operations

Cash Cashreceived receivedfrom from sale saleof ofgoods goods and andservices services

-

Cash Cashpaid paidfor for operating operatinggoods goods and andservices services

=

cash cashflow flow from fromoperations operations

+Investing

Financing

Cash Cashreceived receivedfrom from sales salesof ofinvestments investments

Cash Cashreceived receivedfrom from issue issueof ofdebt debtor or capital capitalstock stock

-

Cash Cashpaid paidfor foracacquisition quisitionof ofinvestinvestments ments

-

Cash Cashpaid paidfor for dividends dividendsand and reacquisition reacquisitionof of debt debtor orcapital capitalstock stock

=

cash cashflow flow from frominvesting investing

+=

cash cashflow flow from fromfinancing financing

= Net Netchange changeinincash cash for forthe theperiod period

Preparing the Statement of Cash Flows Firms could prepare the cash flow statement directly from the cash account. Most, however, find it more efficient to prepare the cash flow statement from the balance sheet and income statement. (a)Direct method (a)Indirect method.

Define the Direct and Indirect Methods

1.-The Direct Method of presentation calculates cash flow from operations by subtracting cash disbursements to supplies, employees, and others from cash receipts from customers. 2.-The Indirect Method calculates cash flow from operations by adjusting net income for noncash revenues and expenses. • Most firms present their cash flows using the indirect method.

Changes in Specific Accounts increase

decrease

IfIfnoncash IfIfnoncash noncashassets assets noncashassets assets are are aredecreased, decreased, Nonareincreased, increased, then thenthey theyprovided providedcash cash cash thencash cashwas wasspent, spent, then so so socash cashisisan aninflow, inflow, Asset socash cashisisan anoutflow, outflow, so so sopositive positivesign. sign. s sonegative negativesign. sign. IfIfliab. IfIfliab. liab.or orS.E. S.E. liab.or orS.E. S.E. increased, Liabilities decreased, increased,then thencash cash decreased,then thencash cash was and was wasobtained, obtained, wasspent, spent, Shareholders’ so so socash cashisisan aninflow, inflow, socash cashisisan anoutflow, outflow, so Equity so sopositive positivesign. sign. sonegative negativesign. sign.

Comparison of Cash Flow to Net Income •

Net income is an accrual based concept and purports to show the long-term.

•

Cash flows purport to show the short term.

•

Consider the outlook for both short-term and longterm and consider that each is either good or poor.

•

A strong growing firm would show both good longterm and good short-term outlooks.

•

A failing firm would show both poor long-term and poor short term outlooks.

Utility,Importance & Advantages • Cash position. • Useful in day to day Cash management. • Useful in Preparing Cash Budget. • Helpful in Financial planning. • Helpful in Financial Control.

Conclusion A company can use a cash flow statement to predict future cash flow, which helps with matters in budgeting. For investors, the cash flow reflects a company's financial health: basically, the more cash available for business operations, the better. However, this is not a hard and fast rule. Sometimes a negative cash flow results from a company's growth strategy in the form of expanding its operations. By adjusting earnings, revenues, assets and liabilities, the investor can get a very clear picture of what some people consider the most important aspect of a company: how much cash it generates and, particularly, how much of that cash stems from core operations

THANK YOU!!