The cash flow statement provides information about cash inflows and outflows during an accounting period. It is developed from balance sheet and income statement data and is an important analytical tool. The cash flow statement focuses on operating, investing, and financing activities. Operating activities relate to core business operations like sales and expenses. Investing activities involve the purchase and sale of long-term assets. Financing activities include borrowing, repaying debt, and providing returns to owners. Cash flow analysis is used both internally and externally to evaluate a firm's liquidity, investment decisions, ability to meet obligations, and future financing needs.

1. CASH FLOW Statement and its ANALYSIS
By
AsHra ReHmat

2. CASH FLOW Statement
• Provides information about cash inflows and
outflows during an accounting period
• Is developed from Balance Sheet and Income
Statement data
• Important as an analytical tool

3. Operations
Cash received and paid
for day-to-day activities
with customers, suppliers,
and employees.
Investing
Cash paid and received
from buying and selling
long-term assets.
Financing
Cash received and paid
for exchanges with
lenders and stockholders.
Business Activities and Cash Flows
The Statement of Cash
Flows focuses attention
on:

4.  Operating Activities
• Cash flows related to selling goods and services; that
is, the principle business of the firm.
• The cash effects of transactions and other events that
enter into the determination of income
Examples of Operating Activities
• Cash received from customers through sale of goods
or services performed;
• Cash payments to suppliers or employees
• Cash payments for taxes and other expenses

5. Direct and Indirect Reporting
of Operating Cash Flows
We will concentrate on the indirect method for now, and we
will look at the direct method again later in the chapter.
Same result

6.  Investing Activities
• Acquiring/disposing of securities that are not cash equivalents
• Cash flows related to the acquisition or sale of non-current assets.
• Lending money/collecting on loans
Examples of Investing Activities
 Cash received from sales of assets that are not held for the regular trading purposes
such as sale of building; marketable securities such as trading and available for sale
securities, and investments
 Cash payments to acquire property, plant, and equipment (PPE), other tangible or
intangible assets, and other long-term assets
 Cash received from sale of, and paid for purchases of derivative instruments
 Loans extended to other companies and collection of such loans

7.  Financing Activities
• Borrowing from creditors/repaying the principal
• Obtaining resources from owners
• Providing owners with a return on investment
Examples of financing activities
 Cash received from issuing share capital
 Cash proceeds from issuing bonds, loans, notes, mortgages and other
short or long-term borrowings
 Cash payments to shareholders to redeem existing shares- treasury stock
• Cash repayment of loans and other borrowings; and
• Cash payments to shareholders as dividends.

9. Uses Of cash flow analysis
External Uses
• To assess the ability of a firm to manage cash flows
• To assess the ability of a firm to generate cash through its operations
• To assess the company’s ability to meet its obligations and its
dividend policy
• To provide information about the effectiveness of the firm to convert
its revenues to cash
• To provide information to estimate or anticipate the company’s need
for additional financing

10. (contd)….
Internal uses
• Along side with cash budget Cash Flow Statement is
used:
– To assess liquidity
• Determine if short-term financing is necessary
– To determine dividend policy
• Decide to distribute; or increase or decrease
– To evaluate the investment and financing decisions

11. Why cash flow Analysis ???
• Its an important analytical tool for creditors, investors and
other users of financial statement data.
 Firm’s ability to generate cash flows in the future
 Firm’s capacity to meet cash obligations
 Firm’s future external financing needs
 Firm’s success in productively managing investing
activities
 Firm’s effectiveness in implementing financing and
investing strategies

12. Analysis of Cash Inflows
Generating cash from operations is the preferred
method for obtaining excess cash to finance:
• Capital expenditures and expansion
• Repayment of debt
• Payment of dividends

13. Analysis of Cash Outflows
When analyzing the cash outflows, the
analyst should consider the necessity of
the outflow and how the outflow was
financed
Generally, it is best to finance short-term
assets with short-term debt and long-term
assets with long-term debt or issuance of
stock

14. THANK YOU!