Cash flow statement (Indirect Method)
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The document discusses the indirect method for preparing a cash flow statement. It explains that the cash flow statement has three sections - operating, investing, and financing activities. It provides details on how to calculate cash flow from operating activities indirectly by making adjustments to net income. It also describes how to determine cash flow from investing and financing activities, such as cash inflows from sale of assets and cash outflows for purchase of investments. The cash flow statement shows the total cash flow for a period as the sum of cash flows from the three activities plus the opening cash balance.
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Statement of Cash FlowsChapter 13McGraw-HillIrwin© .docx
Statement of Cash Flows
Chapter 13
McGraw-Hill/Irwin
© 2009 The McGraw-Hill Companies, Inc.
Chapter 13: Statement of Cash Flows
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Understanding the Business
Positive cash flows permit a company to . . .
Expand its operations.
Replace needed assets.
Take advantage of market opportunities.
Pay dividends to owners.
Wall Street analysts consider cash flow an important indicator of a company’s financial health.
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The cash flow statement focuses attention on a firm’s ability to generate cash internally, its management of current assets and current liabilities, and the details of its investments and its external financing. Positive cash flows permit a company to take advantage of market opportunities, pay dividends to owners, expand its operations, and replace needed assets. Wall Street analysts consider cash flow an important indicator of a company’s financial health.
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CashShort-term, highly liquid investments.Readily convertible into cash.So near maturity that market value is unaffected by interest rate changes (i.e., less than 3 months to maturity).
Classifications of the Statement of Cash Flows
Currency
Cash Equivalents
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Cash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near maturity that there is little risk of change in their values if interest rates change.
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Classifications of the Statement of Cash Flows
Operating Activities
Investing Activities
Financing Activities
Cash inflows and outflows directly related to earnings from normal operations.
Cash inflows and outflows related to the acquisition or sale of productive facilities and investments in the securities of other companies.
Cash inflows and outflows related to external sources of financing (owners and creditors) for the enterprise.
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Part I
The statement of cash flows reports cash inflows and outflows in three broad categories: operating activities, investing activities, and financing activities.
Part II
The operating activities section reports the cash effects of the elements of net income.
Part III
The investing activities section reports the cash effects of the acquisition and disposition of assets (other than inventory and cash equivalents).
Part IV
The financing activities section reports the cash effects of the sale or repurchase of shares, the issuance or repayment of debt securities, and the payment of cash dividends.
We will discuss each of these sections in more detail in the next few slides.
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CASH INFLOWS
Business
CASH OUTFLOWS
Investing Activities
Operating Activities
Financing Activities
Sale of operational assets
Sale of investments
Collections of loans
Cash received from revenues
Issuance of stock
Issuance of bonds and notes
Purchase of operational assets
Purchase of investments
Loans to others
Cash paid for expenses
Payment of dividends
Repurchase of stock
Repayment of debt
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The cash flow statement summarizes the cash inflows and outflows for A Ltd. for the year ended March 31, 2012. It shows a net cash from operating activities of Rs. 86,000, net cash used in investing activities of Rs. 60,000 from purchase of fixed assets, and net cash used in financing activities of Rs. 26,000 from repayment of bank loan and dividend payment. Overall, there was no change in the closing cash and bank balance of Rs. 30,000 from the opening balance.
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The cash flow statement summarizes the cash inflows and outflows for A Ltd. for the year ended March 31, 2012. It shows that cash from operating activities was Rs. 40,000, which was primarily from net profit adjusted for depreciation. Cash used in investing activities was Rs. Nil. Cash from financing activities was Rs. Nil as bank loan repayment was offset by dividend payment. Overall, cash and cash equivalents increased by Rs. 8,000 to Rs. 30,000.
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The statement of cash flows reports cash flows from three activities: operating, investing, and financing. Operating activities reflect cash flows from revenues and expenses that affect net income. Investing activities reflect cash flows that affect noncurrent assets. Financing activities reflect cash flows that affect equity and debt. The statement of cash flows can be prepared using either the direct or indirect method. The direct method reports actual cash receipts and payments, while the indirect method reconciles net income to net cash flow from operating activities.
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三、进国企，银行，事业单位，考公务员等等，这些单位是必需要提供真实教育部认证的，办理教育部认证所需资料众多且烦琐，所有材料您都必须提供原件，我们凭借丰富的经验，快捷的绿色通道帮您快速整合材料，让您少走弯路。
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2:同时对留学生所学专业登记给予评定
3:国家专业人才认证中心颁发入库证书
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Cash flow statement (Indirect Method)
- 2. Activities under Cash flow Operating Activity Financial Activity Investing Activity
- 3. Operating Activity Direct Method Indirect Method
- 4. Operation Cash flow Indirect Method Net profit before tax and Extradinory items (A) Add : Non Cash flow and Non Operating items debited to Profit and Loss Account (B) i) Depriciation Ii) Amortisation of Intangiable assets Iii) loss of sale of Fixed Assets Iv) Loss on sale of Investments V) Provision for Tax Vi) Divident Paid Less : Non Cash flow and Non Operating items credited to Profit and Loss Account (C) i) Profit on sale of Fixed Assets Ii) Profit on sale of Investments Less : Net Tax paid (Tax Paid/ Tax Refund) (D) Less : Extradinory items(E) Operation cash flow before Working Capital Changes : (A)+(B)-(C)-(D)-(E)
- 5. Operation Cash flow (1)= Operating Cash flow before working capital changes + Effect of Changes in working Capital Effect of Changes in working Capital : Decrease in Current Assets + Increase in Current liabilities – Increase in Current Assets – Decrease in Current Liabilities.
- 6. Operation Cash Flow from Investing activity (2) Cash Inflows Cash flow from sale of assets ( Land , Building, Goodwill) Cash flow from sale of Shares, Debentures of other Companies Receipt of Loans Given Cash outflows Purchase of Fixed assets (Tangible Assets) Purchase of Intangible assets Purchase of Investments ( Shares, Debentures) Purchase of Government bonds Loan to third party
- 7. Operation Cash Flow from Finance Activity (3) Cash Inflows I) issue of Equity and preference share capital Ii) Issuance of Debt Cash Outflows i) Buy back of shares Ii) Redemption of shares
- 8. Cash Flow at the end of the period = (1)+(2)+(3)+Opening Cash and Cash Equivalents at the beginning of the year.