Cash flow analysis

1. CASH FLOW ANALYSIS

2. company
SMC(optional)
Direct method
Indirect
method
Non-SMC
(compulsory)
Indirect
method

3.  Cash comprises cash on hand and demand deposits
with banks.
 5.2 Cash equivalents are short term, highly liquid
investments that are readily convertible into known
amounts of cash and which are subject to an
insignificant risk of changes in value.
 5.3 Cash flows are inflows and outflows of cash and
cash equivalents.
 5.4 Operating activities are the principal revenue-
producing activities of the enterprise and other
activities that are not investing or financing activities.
 5.5 Investing activities are the acquisition and
disposal of long-term assets and other investments not
included in cash equivalents.
 5.6 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.

4. MEANING AND DEFINITION
Cash flow statement is a statement which indicates
sources of cash inflows and transaction of cash
outflows of a firm during an accounting period. The
transactions which generate cash inflows are
known as sources of cash and activities which
cause cash outflows are known as uses of cash. It
is appropriately termed as “where got where gone
statement”.

5. CASH FLOW STATEMENT
The Institute of Chartered Accountants of
India(ICAI) issued the Accounting Standard(AS-3
(revised)) relating to the preparation of cash flow
statement(CFS) for accounting periods
commencing on or after April 1,2004 for enterprises
(i)which have either turnover of more than 50 crores
and(ii)the share is listed in stock exchange.

6. OBJECTIVE
 Useful in financial planning
 Helpful in formulating business policies
 Assistance in preparation of cash budget
 Helpful in comparison with standard of actual
 Used for assessment of cash flow from various
activities
 It highlights cash flow from recurring activities
 Cash flow statement is an important financial tool
 Useful for financial institutions

7. IMPORTANCE
 Evaluation of cash forecasting
 Easy financing decision making
 Help in investment decision
 Proper allocation of available cash resources
 Explains the deviations from earnings.

8. LIMITATIONS
 Not a substitute of income statement
 Manipulation of cash position possible
 Not a substitute of fund flow statement
 Based on historical cost principle
 No adherence to basic accounting principles

9. Cash
flow
Direct
method
Indirect
method

11. DIRECT METHOD

12.  Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees (..........)
Cash generated from operations
Income taxes paid (......)
Cash flow before extraordinary item
Proceeds from earthquake disaster settlement
Net cash from operating activities
 Cash flows from investing activities
Purchase of fixed assets (.....)
Proceeds from sale of equipment
Interest received
Dividends received
Net cash from investing activities

13.  Cash flows from financing activities
Proceeds from issuance of share capital
Proceeds from long-term borrowings
Repayment of long-term borrowings (....)
Interest paid (....)
Dividends paid (........)
Net cash used in financing activities (.......)
Net increase in cash and cash equivalents
Cash & cash equivalents at beginning of period
Cash and cash equivalents at end of period

14. INDIRECT METHOD

15. Cash flow from operating activities
Net profit before tax and extraordinary items
Adjustment for:
deprecation
Foreign exchange
Loss on sale of fixed assets
Gain on sales of fixed assets
Interest paid
Interest received
Dividend received
Operating profit before working capital change
Add: decrease in current assets
increase in current liability
Less: decrease in current liability
increase in current assets
Cash generated from operating activities
Income tax paid
Cash flow before extraordinary items
(+)or (-) Extraordinary items
Net cash from operating activities
Cash flow from investing activities
Purchase of fixed assets
Sale of fixed assets
Purchase of investment
Sale of investment
Interest received
Dividend received
Net cash from investing activities
(..............)
(..............)
(................)
(...............)
(............)
(..........)
..............
..............

16. Cash flow from financing activities:
Proceeds from issue of share capital
Proceeds from long term borrowings
Repayment o long term borrowings
Interest paid
Dividend paid
Net cash from financing activities
Net increase (or decrease) in cash or cash equivalent
Cash and cash equivalent at the beginning of the period
Cash and cash equivalent at the end of the period
(.......)
(.......)
(.........)