Cash flow-statement-MBA III(M IQBAL)

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Cash flow-statement-MBA III(M IQBAL)

  1. 1. Statement of Changes in Financial Position : Cash Flow Statement Presented by: Muhammad IQBAL
  2. 2. The Cash Flow StatementThe cash flow statement provides information about:• Cash Receipts (cash inflows)• Uses of Cash (cash outflows)• During a Period of TimeInflows and outflows are reported for:• Operating activities• Investing activities• Financing activities
  3. 3. Cash Inflows and Outflows
  4. 4. Classification of Business Activities : Inflow and Outflow of Cash Operating Activities Cash Inflow Cash Outflow 1) Cash Sales 1) Cash Purchases 2) Received from Debtor 2) Payment to Creditors 3) Commission & Fees 3) Cash Operating Expenses 4) Royalty 4) Payment of Wages 5) Income Tax 6) Manufacturing ExpensesCash effects the transaction on Net Income
  5. 5. Classification of Business Activities : Inflow and Outflow of Cash Investing Activities Cash Inflow Cash Outflow 1) Sale of Fixed Assets 1) Purchase of Fixed Assets 2) Sale of investments 2) Purchase of Investments 3) Interest Received 3) Working Capital 4) Dividend Received 5) Working Capital Recovery
  6. 6. Classification of Business Activities : Inflow and Outflow of Cash Financing Activities Cash Inflow Cash Outflow 1) Issue of Shares in Cash 1) Payment of Loans 2) Issue of Debentures in 2) Redemption of Preference Cash Shares 3) Proceeds from long-term 3) Payment of Dividends borrowings 4) Interest Paid 5) Repayment of Finance/ Lease Liability
  7. 7. Objectives of Cash Flow Statement• Highlighting cash flow from different activities• Short-term Planning• Cash Flow information helps to understand liquidity• Efficient cash management• Prediction of sickness• Comparison with budget• Cash position
  8. 8. Cash Flow Statement : Limitations• Does not show the liquidity position of the firm• It is not a substitute of income statement• Does not show the financial position of the firm in totality
  9. 9. Distinction between Cash flow Statement and Funds Flow StatementBasis Of Difference Cash Flow Funds Flow It recognizes Cash basis It is based upon accrual Basis of Of accounting Basis of accounting I.e Accounting Working capital Significance It is useful for short- It is useful for long-term Term financial planning Financial planning Schedule of Such a schedule is not Schedule of changes in Changes in Prepared for preparing Working capital isWorking Capital Cash flow statement Prepared separately It studies only the Causes of It studies causes of Ch- Causes of cash Variation variation ange in working capital
  10. 10. Preparing a Statement of Cash Flows• Use net operating income as the starting point to get net operating cash flow• Add back any non-cash expense (Example - Depreciation) Net Cash Flow = Cash Inflow - Cash Outflow Net Operating Cash Flow = Income after Taxes + Depreciation
  11. 11. Preparing a Statement of Cash FlowsOrder of Presentation: Direct Method 1. Operating activities. Indirect Method 2. Investing activities. 3. Financing activities.Three Sources of Information: 1. Comparative balance sheets 2. Current income statement 3. Additional information
  12. 12. Cash Flow from Operating Activities : Direct Method Cash Flow from Operating Activities Amount Amount (Rs.) (Rs.)Cash Receipts from :Sales XXX XXXCommission & Fees XXXInterest Received XXXCash Payment for :Purchases XXX XXXPayments to and for employees XXXOperating Expenses XXXInterest Payments XXXDirect Taxes Paid XXX XXXNet Cash Flow from Operating Activities
  13. 13. Cash Flow from Operating Activities : Indirect Method Cash Flow from Operating Activities Amount Amount (Rs.) (Rs.)Net Profit before Tax xxxAdjustment for : Depreciation xxx Loss on Sale of Fixed Assets xxx Loss on revaluation xxx xxxOperating Profit before Working Capital Changes xxxAdjustment* for :Trade and other Receivables xxxInventories or Stocks xxx xxxTrade Payments or (Creditors and B/P) xxxCash Generated from Operations xxx xxxInterest PaidTaxes Paid xxxNet Cash Flow from Operating Activities XXX
  14. 14. Preparing the Statement of Cash FlowsIndirect and Direct Methods Companies favor the indirect method for two reasons: 1. It is easier and less costly to prepare, and 2. It focuses on the differences between net income and net cash flow from operating activities.
  15. 15. Book Approach Income Statement Cash Flow Statement Revenues +Net Income Expenses +Depreciation Operating Cost of Goods Sold -Capital Investment + Depreciation* +Salvage Proceeds Operating Expenses -Gain Tax Investing Taxable Income -Working Inv Cap Income Taxes +Working Cap Recovery Net Income + +Borrowed Funds -Repayment of Principal Financing*Assumes Tax Depreciation = Book Depreciation Thus, no deferred taxes
  16. 16. Format for Cash Flow Statement
  17. 17. End of Presentation********************** Thank You

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