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Cash Flow Statement

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How to make cash flow statement

How to make cash flow statement

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Cash Flow Statement Cash Flow Statement Presentation Transcript

  • Cash Flow Statement
  • Meaning: Cash Flow Statement “ A cash flow statement is a statement specifying the cash inflows and cash outflows arising from the Operating , Investing and Financing activities during the two successive balance sheets explaining the difference between the opening and closing cash balance.”
  • Why Cash Flow Statement
    • Along with “the profitability” of the business, “the liquidity” position is equally important to those who have short – term claims on the business unit. The liquidity of the business focuses on the ability of the firm to discharge the liabilities as and when they matures. Thus, there is a need to clarify the liquidity position of a company. This need is fulfilled by a separate cash flow statement.
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  • Operating Activities
    • Operating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities.
    • The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the enterprise have generated sufficient cash flows to maintain the operating capability of the enterprise, pay dividends, repay loans and make new investments without recourse to external sources of financing.
    • Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the enterprise. Therefore, they generally result from the transactions and other events that enter into the determination of net profit or loss.
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  • Examples of Cash flows from Operating Activities
    • Cash receipts from the sale of goods and the rendering of services;
    • Cash receipts from royalties, fees, commissions and other revenue;
    • Cash payments to suppliers for goods and services;
    • Cash payments to and on behalf of employees;
    • Cash receipts and cash payments of an insurance enterprise for premiums and claims, annuities and other policy benefits;
    • Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities; and
    • Cash receipts and payments relating to futures contracts, forward contracts, option contracts and swap contracts when the contracts are held for dealing or trading purposes.
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  • Investing Activities
    • Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
    • The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.
    • Examples of Cash Flows from Investing Activities:
      • Cash payments to acquire fixed assets (including intangibles). These payments include those relating to capitalized research and development costs and self-constructed fixed assets;
      • Cash receipts from disposal of fixed assets (including intangibles);
      • cash payments to acquire shares, warrants or debt instruments of other enterprises and interests in joint ventures (other than payments for those instruments considered to be cash equivalents and those held for dealing or trading purposes);
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      • cash receipts from disposal of shares, warrants or debt instruments of other enterprises and interests in joint ventures (other than receipts from those instruments considered to be cash equivalents and those held for dealing or trading purposes);
      • Cash advances and loans made to third parties (other than advances and loans made by a financial enterprise);
      • Cash receipts from the repayment of advances and loans made to third parties (other than advances and loans of a financial enterprise);
      • Cash payments for futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the payments are classified as financing activities; and
      • Cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing activities
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  • Financing Activities
    • Financing activities are activities that result in changes in the size and composition of the owners’ capital (including preference share capital in the case of a company) and borrowings of the enterprise.
    • The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds (both capital and borrowings) to the enterprise.
    • Examples of Cash Flows from Financing Activities:
      • Cash proceeds from issuing shares or other similar instruments;
      • Cash proceeds from issuing debentures, loans, notes, bonds, and other short or long-term borrowings; and
      • Cash repayments of amounts borrowed.
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  • Form of Cash Flow Statement (Indirect Method) XXXX Operating Profit Before Working Capital Changes XX Interest Expense (XX) Dividend Income (XX) Interest Income XX Foreign Exchange Loss XXX Depreciation Adjustments for: XXXX Net Profit before Tax Cash Flows From Operating Activity (A) Indirect Method of Cash Flow Statement
  • XXX Net Cash Flow from Investing Activities XXX Dividends Received XXX Interest received XX Proceeds from sale of equipment (XXX) Purchase of Fixed assets Cash Flows from Investing Activities (B) XXX Net Cash Flow from Operating Activities (XX) Income Taxes Paid XXXX Cash Generated from Operations XXX Change in Sundry Creditors (+ve for  , -ve for  ) XXX Change in Inventory (+ve for  , -ve for  ) (XX) Change in Sundry Debtors (+ve for  , -ve for  )
  • XXXX Cash and Cash Equivalents at the end of period XX Cash and Cash Equivalents at the beginning of period XXX Net Change in cash and Cash Equivalents (A-B+C) XXX Net Cash used in Financing Activities (X) Dividend paid (X) Interest paid (XX) Repayment of long term borrowings XX Proceeds from Long term borrowings XXX Proceeds from issuance of share capital Cash Flows from Financing Activities (C)
  • Thanks Presented by: Nitin Gupta