Cash flow statement

1. Cash flows statement

2. Can a company have a
profit but not have cash?

3. Is this information not revealed in the P&L
statement you may think?

4. Cash flows statement
 Therefore, the cash flow statement is a very important
financial statement, as it reveals how much cash the
company is actually generating.
 The Cash flow statement gives us a picture of the true
cash position of the company

5. Three main activities…..
 Operational activities (OA): Activities that are directly related to the daily
core business operations. Example
 Investing activities (IA): Activities pertaining to investments that the
company makes with an intention of reaping benefits at a later stage.
Example
 Financing activities (FA): Activities pertaining to all financial transactions of
the company. Example

6. Activity…
Gold’s Gym has the following activities…
1. Display advertisements to attract new customers
2. Hire fitness instructors to help clients in their fitness workout
3. Seek short term loan from bankers
4. Issue a certificate of deposit for raising funds
5. Issue new shares to a few known friends to raise fresh capital for
expansion (also called preferential allotment)
6. Invest in a startup company working towards innovative fitness regimes
7. Park excess money (if any) in fixed deposits
8. Invest in a building coming up in the neighborhood, for opening a new
fitness center sometime in the future
9. Upgrade the sound system for a better workout experience

7. Keeping this in perspective, we will now
understand how the various activities
listed in the exercise would impact the
cash balance of the company…..

8. Activity
No
Activity Type Rational Cash Balance
01 OA
Expenditure towards
advertisement
Decreases
02 OA
Expenditure towards new
recruits
Decreases
03 FA
Loan means cash inflow to
business
Increases
04 FA
Deposits via CD means
cash inflow
Increases
05 FA
Issue of fresh capital
means cash inflow
Increases
06 IA
Investment in startup
means cash outflow
Decreases
07 IA
Money parked in FD
means cash going out of
business
Decreases
08 IA
Investment in building
means cash going out of
business
Decreases
09 OA
Expenditure towards the
sound system
Decreases

9. If you look through the table and start correlating
the ‘Cash Balance’ you will observe that:
 Whenever the liabilities of the company increases the cash balance also
increases
 This means if the liabilities decreases, the cash balance also decreases
 Whenever the asset of the company increases, the cash balance decreases
 This means if the assets decreases, the cash balance increases

10. Continue…
 Also, we realize that each activity of the company be it operating
activity, financing activity, or investing activity either produces cash (net
increase in cash) or reduces the cash (net decrease in cash) for the
company.
 Hence the total cash flow for the company will be:-
 Cash Flow of the company
 = Net cash flow from operating activities
 + Net Cash flow from investing activities
 + Net cash flow from financing activities

11. Mar 2018 Mar 2019 Mar 2020
Cash from
Operating Activity
836 812 427
Cash from
Investing Activity
2,865 -1,498 -292
Cash from
Financing Activity
-1,496 -1,568 -1,101
Net Cash Flow 2,206 -2,254 -966

14. Format of Cash Flow Statement (Direct Method)
A. Cash Flows from Operating Activities
Cash receipts from customers ---
Cash paid to suppliers and employees (---)
-------
Cash generated from operations ---
Income taxes paid (---)
-------
Cash flows before extraordinary items ---
Extraordinary items ---
------
Net cash flows from operating activities ---
------
B. Cash Flows from Investing Activities
Purchase of fixed assets (---)
Purchase of investments (---)
Sale of fixed assets ---
Sale of investments ---
Interest received ---
Dividend received ---
------
Net cash flows from investing activities ---
-----
C. Cash Flows from Financing Activities
Proceeds from issue of share capital ---
Proceeds from long-term borrowings ---
Repayment of long-term borrowings (---)
Dividend paid (---)
------
Net cash flows from financing activities ---
------
Net increase/(decrease) in cash and cash equivalents(A+B+C) ---
Cash and cash equivalents as at ------ (opening) ---
Cash and cash equivalents as at ------ (closing) ---

15. Format of Cash Flow Statement (Indirect Method)
A. Cash Flows from Operating Activities
Net profit before tax and extraordinary items ---
Adjustment for:
Depreciation ---
Non-cash items ---
Non-operating items (dividend, interest income) ---
-------
Operating profit before working capital changes ---
Working capital adjustment ---
-------
Cash generated from operations ---
Income taxes paid (---)
-------
Cash flows before extraordinary items ---
Extraordinary items ---
------
Net cash flows from operating activities ---
------
B. Cash Flows from Investing Activities
Purchase of fixed assets (---)
Purchase of investments (---)
Sale of fixed assets ---
Sale of investments ---
Interest received ---
Dividend received ---
------
Net cash flows from investing activities ---
-----
C. Cash Flows from Financing Activities
Proceeds from issue of share capital ---
Proceeds from long-term borrowings ---
Repayment of long-term borrowings (---)
Dividend paid (---)
------
Net cash flows from financing activities ---
------
Net increase/(decrease) in cash and cash equivalents(A+B+C) ---
Cash and cash equivalents as at ------ (opening) ---
Cash and cash equivalents as at ------ (closing) ---

16. Key takeaways….
 The Cash flow statement gives us a picture of the true cash position of the
company
 A legitimate company has three main activities – operating activities, investing
activities and the financing activities
 Each activity either generates or drains money for the company
 The net cash flow for the company is the sum of operating activities, investing
activities and the financing activities

17. Continue …
 Investors should specifically look at the cash flow from operating activities of the
company
 When the liabilities increase, cash level increases and vice versa
 When the assets increase, cash level decreases and vice versa
 The net cash flow number for the year is also reflected in the annual report
 The Statement of Cash flow is a useful addition to the financial statements of a
company because it indicates the company’s liquidity position.