Cash-flow statement

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Cash-flow statement

  1. 1. No more ratios, please!
  2. 2. Cash flow statem Prepared by : Jay Raval SUBMTED TO :Dr. B.C.Ajmera Sir
  3. 3. CONTENT  Statement of Cash Flows in Perspective  Meaning  Classification  Advantages
  4. 4. Statement of Cash Flows in Perspective  Why the statement of cash flows is needed in addition to the balance sheet and the profit and loss account?  To provide relevant information about the cash receipts and payments of an enterprise  evaluate an enterprise’s  liquidity  financial flexibility  profitability  risk  Provide feedback about previous assessments
  5. 5. MEANING  Cash – cash means all cash + cash equitable + marketable securities + bank balance  Flow – flows means flow of cash from business to economy and economy to business that is cash inflows and cash outflows.  Statement – statement is a performance prescribed by Chartered Accountant Act,1948 Thus, Cash Flow Statement is a statement of inflows and outflows of cash and cash equivalents in an enterprise during a specified period of time.
  6. 6. Continue…  A Cash Flow Statement summarizes the causes of changes in cash position of a business enterprise between dates of two balance sheets.  A statement a Cash Flow reveals the movements of cash of a business enterprise for the given accounting period indicating specifically how the cash was generated.  Statement of Cash Flow is required for short range financial planning.
  7. 7. CLASSIFICATION  1. 2. 3. As per Accounting Standard-3, the changes resulting in cash inflows and cash outflows arise on account of three types of activities. Operating activities Investing activities Financing activities
  8. 8. 1. CASH FLOW FROM OPERATING ACTIVITIES  Operating Activities are the principle revenue producing activities of the enterprise and other activities that are not investing and financing activities.  Hence, these are the results of those transaction and events that determines the net profit or loss.
  9. 9. Cash Flows from Operating Activities Payments to Suppliers and Employees for Materials and Services Receipts from Customers for Sales of Goods and Services Operating Activities Payments to Governments for Taxes and Duties
  10. 10. Determining Net Cash Flow from Operating Activities: Direct Method  Cash received from customers  Cash paid to suppliers and employees  Duties & taxes paid
  11. 11. 2. CASH FLOW FROM INVESTING ACTIVITIES  Investing activities include the purchase and disposal of long-term assets and other investments not included in cash equivalents.  The separate disclosure of Cash Flow arising from investing activities is important.
  12. 12. Cash Flows from Investing Activities R eceip ts from S ales of Fixed A ssets R eceip ts from S ales of In vestm en ts an d from C ollection s of Loan s R eceip ts from In terest an d D ivid en d s on Loan s an d In vestm en ts P aym en ts for P u rch ase of Fixed A ssets In vestin g A ctivities P aym en ts for P u rch ases of In vestm en ts an d for M ak in g of Loan s
  13. 13. Determining Cash Flow from Investing Activities 1. Plant and machinery  purchase  Disposal 2. Investments  Purchases  Sales 3. Interest received 4. Dividend received
  14. 14. 3. CASH FLOW FROM FINANCING ACTIVITIES  The separate disclosure of Cash Flows arising from financing activities is important because it is useful in predicting funds to the enterprise.  Financing Activities are activities that result in changes in the size and composition of the owner capital and borrowings of the enterprise.
  15. 15. Cash Flows from Financing Activities P aym en ts for D ivid en d s on S h are C ap ital R eceip ts from Issu an ce of S h are C ap ital R eceip ts from Issu an ce of D eb en tu res R eceip ts from O th er Lon gterm B orrow in gs Fin an cin g A ctivities P aym en ts for P rin cip al on D eb en tu res an d O th er B orrow in gs P aym en ts for In terest on D eb en tu res an d O th er B orrow in gs
  16. 16. Determining Cash Flow from Financing Activities 1. Equity share capital   Issuance Buy-back 2. Dividends paid 3. Secured loan and unsecured loan   Issuance Repayment and redemption 4.Interest paid
  17. 17. Advantages of Cash Flow Statement  Helpful in planning and co-ordination.  Helpful in control.  Useful in internal financial management.  Knowledge of change in cash position.  Helpful in short-term financial decisions.

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