Cash Flow1

CASH FLOW ANALYSIS PRESENTATION BY S.CLEMENT

What is cash ?    



Currency/coins or Balances held at bank or Short term investments or What constitutes cash for a layman may be different for a finance guy In terms of AS3, any thing convertible in to cash is deemed as cash.

Cash Flow statement 





Cash flow statement- it is a summary of cash inflows and outflows during a particular period for a business unit Captures the impact of various transactions on the cash position of the firm the net change in cash position

Cash Flow Analysis why  

 

Cash is life line of business Cash position is not equal to that of profit which denotes fund position Profit with out cash generation ? Financial needs assessed on cash flows- lenders look at the cash position of the business unit

PROFIT PROFIT

VS CASH CASH

Accounting principles

No such principles

Affected by Intangible items

Not affected

Accrual basis

Actual basis

Revenue nature

Capital+revenue

Affected by inventory valuation

No such treatment

Cash flow vs balance sheet    





Cash flow Cash position Actual position Changes in cash position Shorter or longer period Summary of inflow and outflow

     

Balance sheet Funds position Accrual position Changes in A/L Normally for a year Position on a particular day

Cash flow Vs Fund flow      

Cash flow No such restrictions Actual basis For shorter period Indicates cash position Not affected by intangible items

 

 

 



Fund flow Refers to changes in WC changes Accrual basis Normally useful for longer period Indicates fund position E.g. debentures converted in to equity will not figure in cash flow. Includes intangible items

Non cash transactions  

 

Depreciation Amortization of intangible expenses Profit or loss on sale of fixed assets Profit or loss on revaluation of FA

Cash flows    



 

Inflow Cash sales Cash from debtors Sale of fixed assets Interest/dividend received Loans Shares/Debenture s

       

Out flow Cash purchases Operating expenses Taxes & duties Purchase of FA Loans given & repaid Int.& Dividend paid Redemption of Pref.shares and debentures

What decides flow of cash ?  

    

Credit worthiness of the firm Management policy – liquidity preference,level of inventory etc Terms of purchase and sale – credit given and taken Nature of product- consumer goods/capital goods etc Market conditions – inflation/deflation Relation with the banks Efficient management of cash flow

AS – 3 Cash flow statement 





AS 3 defines cash flow statement – cash flow statement is a statement setting out cash under different heads of sources and utilization to determine the requirements of cash during the given period and to prepare for its adequate provisions Listed companies /company with a turn over of RS 50 cr and above – CF mandatory Cash or its equivalent

Accounting standards 3   





Cash flow Three parts – operating, investing & financing Operating – cash flow from Principal revenue activities Investing – Purchase & sale of assets and raising of funds and redemption of liabilities. Financing – Equity & borrowings

OPERARTING CASH FLOW 

  



Operating flows from principal revenue producing activities It includes – cash sales & receipts from debtors, Payment to suppliers of goods & employees, Receipts from royalties fees etc,insurance premium,payment and refund of IT .

CF statement as per AS 3 CF from Operating activity  PBT add – depreciation +int.paid+ forex loss less – Int. received+dividend received+Forex profit add - decrease in CA(other than cash) & increase in CL less incre.in CA & decre. In CL less - tax paid add extraordinary items Net cash from OPR. activity 

Investing cash flow      

Purchase and sale of fixed assets Purchase and slae of investments Changes in loan position Interest income Dividend income Net cash flow

Financing cash flow        

Issue of share capital Buy back of shares Proceeds from long term borrowings Repayment of long term borrowings Short term loans Dividends paid Interest paid Net cash flow

Net cash flow      

a) Operating + B) Investing + C) Financing + net increase or decrease in cash balance cash &equivalents (opening) balance cash &equivalents ( closing)

RELIANCE INDUSTRIES LTD

Cash flow (Re in crore)

2004

2005

2006

Operating Investing Financing Opening balance Net change Closing balance

11778 (10563) (1137) 147

17289 (8162) (5742) 224

10302 (12131) 367 3609

77 224

3385 3609

(1463) 2146

CF what it reveals   

 

 

Segment wise cash flows – surplus or deficit management Receivables and payment period Ability to fund expansion plan/acquisition of assets Ability to meet debt/interest/dividend obligations Reason for differences between cash and income generation Need for external financing Useful for credit analysis,bankruptcy prediction,dividend policy etc

Thank You For your patient hearing