Your SlideShare is downloading. ×
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Issues In Cash Flow Analysis
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Issues In Cash Flow Analysis

6,225

Published on

Published in: Economy & Finance, Business
0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
6,225
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
360
Comments
0
Likes
4
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Presentation of Issues in Cash Flow Analysis
    Presented By: Submitted To:
    Group D Dr.Devendra Singh
    PGDM/A
  • 2. Cash flow statement
    In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
  • 3. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.
  • 4. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7
    (IAS 7), is the International Accounting Standard that deals with cash flow statements.
  • 5. People and groups interested in cash flow statements include:
    Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
    Potential lenders or creditors, who want a clear picture of a company's ability to repay
    Potential investors, who need to judge whether the company is financially sound
  • 6. Contd…
    Potential employees or contractors, who need to know whether the company will be able to afford compensation
    Shareholders of the business.
  • 7. The cash flow statement is intended to
    provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances
    provide additional information for evaluating changes in assets, liabilities and equity
    improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods
    indicate the amount, timing and probability of future cash flows
  • 8. The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
  • 9. 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.
  • 10. 3 CLASSIFICATIONS OF CASH FLOW
  • 11. Define the Three Classifications of Cash Flows
    1.Operations –
    cash flows related to production,sellinggoods 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.
  • 12. operating cash flows include
    Receipts from the sale of goods or services
    Receipts for the sale of loans, debt or equity instruments in a trading portfolio
    Interest received on loans
    Dividends received on equity securities
    Payments to suppliers for goods and services
    Payments to employees or on behalf of employees
    Interest payments (alternatively, this can be reported under financing activities in IAS 7, and US GAAP)
  • 13. Examples of Investing activities are
    Purchase of an asset (assets can be land, building, equipment, marketable securities, etc.)
    Loans made to suppliers or customers
  • 14. Financing activities include
    Proceeds from issuing short-term or long-term debt
    Payments of dividends
    Payments for repurchase of company shares
    Repayment of debt principal, including capital leases
    For non-profit organizations, receipts of donor-restricted cash that is limited to long-term purposes
  • 15. Components of the Statement of Cash Flows
    Cash received from
    sale of goods
    and services
    Cash paid for
    operating goods
    and services
    cash flow
    from operations
    -
    =
    Operation
    Investing
    financing
    + -
    cash flow
    from investing
    Cash received from
    sales of investments
    and PP&E
    Cash paid for ac-
    quisition of invest-
    ments and PP&E
    -
    =
    + -
    Cash paid for
    dividends and
    reacquisition of
    debt or capital stock
    Cash received from
    issue of debt or
    capital stock
    cash flow
    from financing
    -
    =
    =
    Net change in cash
    for the period
  • 16. Changes in Specific Accounts
    Non-cash
    assets
    Liability &
    Share-
    Holder’s
    equity
    increase
    decrease
    If noncash assets
    are increased,
    then cash was spent,
    so cash is an outflow,
    so negative sign.
    If noncash assets
    are decreased,
    then they provided cash
    so cash is an inflow,
    so positive sign.
    If liab. or S.E.
    increased, then cash
    was obtained,
    so cash is an inflow,
    so positive sign.
    If liab. or S.E.
    decreased, then cash
    was spent,
    so cash is an outflow,
    so negative sign.
  • 17. Preparation methods
    Indirect method
    Direct method
  • 18. DIRECT METHODCash flows from (used in) operating activities
  • 19. Cash flows from (used in) investing activities
    Cash flows from (used in) financing activities
  • 20. Indirect method
    Citigroup Cash Flow Statement
    Operating activities, cash flows provided by or used in:
  • 21. Investing activities, cash flows provided by or used in:
  • 22. 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 long-term and consider that each is either good or poor.
    A strong growing firm would show both good long-term and good short-term outlooks.
  • 23. Contd…
    A failing firm would show both poor long-term and poor short term outlooks.
    What about a firm with good cash flows (short-term) but poor net income (long-term)?
    What about a firm with poor cash flows (short-term) but good net) income (long-term?
  • 24. Issues To Cash Flow Analysis
    Time horizon for analysis of cash flow
    Biases in cash flow statements
    Time Value Of Money
  • 25. ISSUES IN CASH FLOW ANALYSIS
  • 26. Issues To Cash Flow Analysis
    Time horizon for analysis of cash flow :
    • Physical life of the plant
    • 27. Technologies life of the plant
    • 28. Product market life of the plant
    • 29. Investment planning horizon of the firm
  • Biases in cash flow statements
    As a cash flows have to be forecast far into the future, errors in estimation are bound to occur. Yet, given the critical importance of cash flow forecasts in projects evaluation, adequate care should be take to guard certain biases which may lead to overstatement or understatement of the true project profitability
  • 30. Overstatement of profitability
    • Intentional overstatement
    • 31. Lack of experience
    • 32. Myopic euphoria
    • 33. Capital rationing
  • Understatement of profitability
    • Salvage value are under estimated
    • 34. Intangible benefits are ignored
    • 35. The value of future option is overlooked
  • Time value of money
    Cost of capital
    • Leasing
    • 36. Long term financing
    • 37. Working capital policy Cost of all inputs
    • 38. Depreciation policy
  • CASE STUDY
  • 39. THANK YOU

×