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1. FINANCIAL STATEMENT ANALYSIS
 Presentation Topic:
Cash Flow Statement
 Presented by:
Badar Munir 331
Kamran Bangash 308
Moin Ali Baig 328
1

2. CASH FLOW STATEMENT
 “A summary of a firm's cash receipts and cash payments
during a period of time.”
 “Firm’s cash inflows and outflows during a period of
time.”
2

3. CASH FLOW STATEMENT
 Cash inflows: The money coming into the business.
 Cash outflows: The money going out from the business.
3

4. CASH FLOW STATEMENT
Cash Outflows Cash Inflows
Business
4

5. IMPORTANCE OF CASH FLOW STATEMENT
 Internal personnel and external entities will use the
statement of cash flows as an analytical tool and used for
analysis of firm.
 A cash flow provides an investor insight into a
company's credit worthiness and overall financial health.
5

6. USES OF CASH FLOW STATEMENT
1. It helps the newly formed companies to know their inflow and
outflow of cash.
2. It helps the investors to judge whether the company is financially
sound or not.
3. It helps the company to know whether it will be able to cover the
payroll and other expenses.
4. It helps the lenders to know the company’s ability to repay.
5. These statements help to have an accurate analysis of the firm’s
ability to meet its current liabilities.
6. A cash flow statement is helpful for planning and managing future
financial commitments.
6

7. USERS OF CASH FLOW STATEMENT
1. Managers (Internal)
2. Potential lenders or creditors
3. Investors
4. Students
5. Govt.
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8. CASH FLOW STATEMENT
 The cash flow statement is partitioned into three
segments.
1. Operating activities
2. Investing activities
3. Financing activities
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9. Cash Flow
Statement
 Operating Investing Financing
activities: activities: activities:
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10. Cash Flows from Operating Activities
Typical cash inflows Typical cash outflows
What are some of the What are some of the
typical cash inflows from typical cash outflows from
operating activities?` operating activities?
Sales of goods Merchandise
and services purchases
Interest Payments of
revenue wages and
other expenses
Dividend 10
revenue Tax payments

11. Cash Flows from Investing Activities
Typical cash inflows Typical cash outflows
What are some of the typical What are some of the
cash inflows from investing typical cash outflows
activities? from investing
activities?
Sales of fixed
assets Purchase of
fixed assets
Sale of long-
term Purchase of
investments long-term
investments 11

12. Cash Flows from Financing Activities
Typical cash inflows Typical cash outflows
What are some of the What are some of the
typical cash inflows from typical cash outflows from
financing activities? financing activities?
Issuing bonds Paying cash
and long-term dividends
notes payable Repaying debt
Issuing Acquiring
preferred and treasury stock 12
common stock

13. Reporting Cash Flows
Increases in Cash Decreases in Cash
Operating Operating
(receipts from (payments for
revenues) expenses)
Investing Investing
(receipts from sales of (payments for acquiring
noncurrent assets) noncurrent assets)
Financing Financing
(receipts from issuing (payments for treasury stock,
13
equity and debt securities) dividends, and redemption of debt
securities)

14. PREPARING A STATEMENT OF CASH FLOW
There are two methods of preparing the statement
of cash flows
1. Indirect method
2. Direct method
 The indirect method derives cash flows from
accrual basis statements.
 The direct method determines cash flows
directly for each source or use of cash. 14

15. The Statement of Cash Flows: Indirect
Method
Accrual Basis Statements Cash Flow Statement
Income Statement Operating activities:
items & Changes in Adjust net income for accruals
Current Assets and and non-cash charges to get
Current Liabilities cash flows
Investing activities:
Balance Sheet: Changes Inflows from sale of assets and
In Non-Current Assets Outflows from purchases of
assets
Balance Sheet: Changes in Financing activities:
Inflows and outflows
Non-Current Liabilities
from loan and equity
and Equity transactions

16. Format of the Statement of Cash Flows:
Indirect Method
Cash flows from operating activities:
Net Income $ XXX
Adjustments (to arrive at cash flow from operations) $ XX
(List of individual inflows and outflows)
Net cash flow from operating activities $ XXX
Cash flows from investing activities:
(List of individual inflows and outflows)$ XX
Net cash flow from investing activities $ XXX
Cash flows from financing activities:
(List of individual inflows and outflows)$ XX
Net cash flow from financing activities $ XXX

17. 17

18. Indirect Method: Special Items
Note the following adjustments to net income in
deriving operating cash flow:
 Loss on sale of assets is added to net income
 Gain on sale of assets is deducted from net
income
 Discount on bonds payable (as amortized) is
added to net income
 Premium on bonds payable (as amortized) is
deducted from net income

19. Format of the Statement of Cash Flows:
Direct Method
Cash flows from operating activities:
Cash receipts (individually): Inflows $ XXX
Cash payments to suppliers (separately): outflows ($ XXX)
Net cash flow from operating activities $ XXX
Cash flows from investing activities:
(List of individual inflows and outflows)$ XX
Net cash flow from investing activities $ XXX
Cash flows from financing activities:
(List of individual inflows and outflows)$ XX
Net cash flow from financing activities $ XXX

20. Comparative Balance Sheet
Shiner Corporation
Assets Dec 31, 1996 Dec 31, 1995
Cash $37,000 $49,000
Accounts Receivable $26,000 $36,000
Prepaid Expenses $6,000 $0
Land $70,000 $0
Building $200,000 $0
Accumulated
$11,000 $189,000 $0
Depreciation
Equipment $68,000 $0
Accumulated
$10,000 $58,000 $0 20
Depreciation
Total Assets $386,000 $85,000

21. Liabilities and Stockholder
Equity
Accounts Payable $40,000 $5,000
Bonds Payable $150,000 $0
Common Stock $60,000 $0
Retained Earnings $136,000 $20,000
Total Liabilities and
$386,000 $85,000
Stockholder Equity 21

22. Income Statement
Shiner Corporation
Revenue $492,000
Operating Expenses $269,000
Depreciation $21,000 $290,000
Income before Income Taxes $202,000
Income Tax Expense $68,000
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Net Income $134,000

23. Statement of Cash Flows
Cash Flow from Operating Activities
Net Income $134,000
Adjustments to reconcile net income to net cash
Accts Receivable decrease $10,000
Prepaid Expense increase ($6,000)
Accts Payable Increase $35,000
Depreciation $21,000
$60,000
Net cash provided from Operating Activities $194,000
Investing Activities
Land Purchase ($70,000)
Building Purchase ($200,000)
Equipment Purchase ($68,000) ($338,000)
Financing Activities
Dividend payment to shareholders ($18,000)
Issuance of Bonds Payable $150,000 $132,000
Net Decrease in Cash ($12,000) 23
Cash Jan 1, 1996 $49,000
Cash Dec 31, 1996 $37,000