The document provides a comprehensive overview of cash flow statements, detailing their purpose, importance, and components such as operating, investing, and financing activities. It outlines methods for constructing cash flow statements and emphasizes the significance of effective cash flow management for business success. Additionally, it discusses the limitations and disadvantages of cash flow statements, particularly regarding their inability to predict future growth and the challenges in interpreting the data.

1. CASH FLOW STATEMENT
Submitted to: Mr. N.K Gupta
Submitted by:
Akshay Vohra
Donil Shijagurumayum
Gunjan Rastogi
Rahul Iyer
Rajnees Singh

2. “THE FACT IS THAT ONE OF
THE EARLIEST LESSONS I
LEARNEDIN BUSINESS WAS
THAT BALANCE SHEETS AND
INCOME STATEMENTS ARE
FICTION, CASHFLOWIS
REALITY.”
-Mr. Chris Chocola
2

3. Reports an
organization's
cash flows i.e.,
cash receipts
and cash
payments
during a
particular
financial year
BASIC CONCEPT

4.  Predict future cash flows
 Evaluate management
decisions
 Determine the ability to
pay dividends to
stockholders’ and
payments to creditors
 Show the relationship of
net income to the
business’s cash flows
PURPOSES OF CASHFLOW
STATEMENT

5. To identify the sources from where cash
inflows have arisen within a particular period
and also shows the various activities where in
the cash was utilized.
It is significant to management for proper
cash planning and maintaining a proper
matching between cash inflows and outflows.
Shows efficiency of a firm in generating cash
inflows from its regular operations.5
IMPORTANCE OF CASHFLOW
STATEMENT

6. Reports the amount of cash used during the period in
various long-term investing activities, such as
purchase of fixed assets.
Reports the amount of cash received during the
period through various financing activities, such as
issue of shares, debentures and raising long-term
loan.
6

7. WHAT IS CASH?

8. ∗ Cash in hand
∗ Cash in bank
∗ Cash equivalents - highly liquid, short-term investments
that can be converted into cash with little delay
FORMS OF CASH

9. THREE CASHFLOWACTIVITIES

10. CASHFLOWFROMOPERATING
ACTIVITIES

11. CASHFLOWFROMOPERATING
ACTIVITIES

12. Operating activities are normal and core activities
within a business that generate cash inflows and
outflows. They include:
∗ Total sales of goods and services collected during a
period;
∗ Payments made to suppliers of goods and services
used in production settled during a period;
∗ Payments to employees or other expenses made
during a period.
MORE ON OPERATING ACTIVITIES
12

13. ∗ An accounting item indicating the money a company
brings in from ongoing, regular business activities,
such as manufacturing and selling goods or providing
a service. Cash flow from operating activities does not
include long-term capital or investment costs. It does
include earnings before interest and taxes plus
depreciation minus taxes.
13
DEFINITION OF OPERATING
ACTIVITIES

14. CASHFLOWFROMINVESTING
ACTIVITIES

15. CASHFLOWFROMINVESTING
ACTIVITIES

16. ∗ An item on the cash flow statement that reports the
aggregate change in a company's cash position
resulting from any gains (or losses) from investments
in the financial markets and operating subsidiaries,
and changes resulting from amounts spent on
investments in capital assets such as plant and
equipment.
DEFINITION OF INVESTING
ACTIVITIES

17. ∗ Examples of Inflows:
 Proceeds from disposal of property, plant and
equipment
 Cash receipts from disposal of debt instruments of
other entities
 Receipts from sale of equity instruments of other
entities
INFLOWOROUTFLOW OF CASH
17

18. ∗ Examples of Outflows:
 Payments for acquisition of property, plant and
equipment
 Payments for purchase of debt instruments of
other entities
 Payments for purchase of equity instruments of
other entities
 Sales/maturities of investments
 Includes purchasing and selling long- term assets
and other investments.
18

19. CASHFLOWFROMFINANCING
ACTIVITIES

20. CASHFLOWFROMFINANCING
ACTIVITIES

21. ∗ A category in a company’s cash flow statement that
accounts for external activities that allow a firm to
raise capital and repay investors, such as issuing cash
dividends, adding or changing loans or issuing more
stock. Cash flow from financing activities shows
investors the company’s financial strength. A company
that frequently turns to new debt or equity for cash,
for example, could have problems if the capital
markets become less liquid.
∗ FORMULA: Cash received from issuing stock or debt -
cash paid as dividends and Re-acquisition of
debt/stock.
CASHFLOWFROMFINANCING
ACTIVITIES

22. Two Formats for
Operating Activities

23. Indirect method reconciles from
net income to net cash provided by
operating activities
23
INDIRECT METHOD

24. ∗Direct method reports all cash
receipts and cash payments
from operating activities
24
DIRECT METHOD

25. ” The only difference between the two
methods is, how cash flows from
operating activities are calculated.”
25
DIFFERENCE BETWEEN INDIRECT
& DIRECT METHOD

26. FORMAT OF INDIRECT METHOD
∗ Net Income
∗ + Depreciation exp (noncash exp)
∗ + Losses from sale of assets
∗ (full amount of sale already included in investing
section)
∗ - Gains from sale of assets
∗ (full amount of sale already included in investing
section)

27. ∗ - increases in current assets
∗ + decreases in current assets
∗ + increases in current liabilities
∗ - decreases in current liabilities
∗ = Net cash from operating activities
27

28. ∗ + Cash Received from Customers
∗ - Cash paid for inventory
∗ - Cash paid for operating expenses
∗ - Cash paid for income taxes
∗ - Cash paid for interest
∗ + Cash received from dividends and interest
∗ = Net cash from operating activities
28
FORMAT OF DIRECT METHOD

29. 8 STEPS OF CONSTRUCTING CASH
FLOW
STEP 1:
Start with Net Income
STEP 2:
Adjust Net Income for non-cash expenses and gains
STEP 3:
Recognize cash inflows (outflows) from changes in
current assets and liabilities

30. STEP 4:
Sum to yield net cash flows from operations
STEP 5:
Changes in long-term assets yield net cash flows from
investing activities
STEP 6:
Changes in long-term liabilities & equity accounts yield
net cash flows from financing activities

31. STEP 7:
Sum cash flows from operations, investing, and
financing activities to yield net change in cash
STEP 8:
Add net change in cash to the beginning cash balance to
yield ending cash

32. ANALYSIS IMPLICATIONS OF CASH
FLOWS

33. A healthy cash flow is an essential part of any successful
business. Some business people claim that a healthy
cash flow is even more important than your business's
ability to deliver its goods or services. Maintaining a
viable cash flow system relies on SIX IMPORTANT
ASPECTS discussed further :
33
MANAGING YOURFIRM’S CASH
FLOW

34. 1. Understanding cash flow is the first step in effectively
managing your cash flow. There's more to it than just a
fancy term for the movement of money into, and out
of, your business checking account.
2. Analyzing your cash flow will help you spot some of the
problem areas in the cash flow cycle of your business.
As in any good analysis, you need to look individually at
each of the important components that make up the
cash flow cycle to determine if it's a problem area or
not. 34

35. 3. Developing a cash flow budget provides a good way
of predicting your business's cash flow for the next
month, six months or even the next year.
4. Improving your cash flow will, without a doubt, make
your business more successful. Accelerating your cash
inflows and delaying your cash outflows are key
factors for improving and managing your cash flow.
The cash flow budget is also a handy tool to use in the
improvement and management of your cash flow.
35

36. 5. Filling your cash flow gaps: from time to time, almost
every business experiences the need for more cash
than it has. If you find yourself in this position, you may
have to borrow money to fill the gap.
6. Handling any cash surplus is just as important as the
management of money into and out of your cash flow
cycle. With the proper management of your cash flow,
you might find yourself with a little extra cash, on which
you can earn investment income.
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37. EXAMPLES OF CASH FLOW
STATEMENTS OF SOME
FAMOUS BRANDS
37

38. COMPARATIVE
CASH FLOW
STATEMENT
OF COCA-COLA
38

39. FORYEAR2011, 2012 & 2013
39

40. `
JOHNSON
AND
JOHNSON’S
CASH FLOW
STATEMENT
(in 3 Parts)
40

41. J&J: OPERATING ACTIVITIES
41

42. J&J: INVESTING ACTIVITIES
42

43. J&J: FINANCING ACTIVITIES
43

44. RELIANCE’S
CASH FLOW
STATEMENT
44

45. COMPARATIVE CASHFLOW
STATEMEN T FOR5 YEARS
45

46. DISADVANTAGES OF
CASH FLOW
STATEMENT
46

47. 1. One of the potential disadvantages of the cash flow
statement is that it does not take into consideration
any future growth. When looking at the statement of
cash flows, you are essentially looking at information
from the past business operations.
Limitations of Cash Flow Statement
47

48. For example: If the company is in the process of
developing a ground-breaking piece of technology, it
could be about to generate a large amount of cash. If
you just look at the cash flow statement, you may not
evaluate the future potential of the company
correctly.
48

49. 49
2. Another potential problem with the statement of cash flows
is that interpreting data may be difficult. The information on a
cash flow statement is not necessarily easy to interpret. You
can see where all of the cash flow is going, but you may not
know if it should be going there.

50. 50
For example, it may be difficult to gauge whether the
company should be investing more in a plant or paying off
debt. You have to take all of the information presented
and make the best assumptions you can make.

51. 3. Cash flow statements are not suitable for judging the
profitability of a firm, as non-cash charges are ignored
while calculating cash flows from operating activities.
51

52. 4. As a cash flow statement is based on a cash basis of
accounting, it ignores the basic accounting concept of
accrual.
WHAT IS ACCURAL-BASED ACCOUNTING?
A method that records income items when they are
earned and records deductions when expenses are
incurred.
52

53. 5. Business owners who experience cash flow
difficulties are likely to make late payments for
business supplies and other expenses. An honest and
creative business owner who is on good terms with
his suppliers will likely develop strategies for
managing these situations.
53

54. For Example: A restaurant owner who offers his
produce vendor a free meal while explaining that his
payment will be late. A cash flow statement cannot
capture these negotiations and agreements, but they
are nonetheless a very real part of doing business.
54

55. A cash flow statement is a document depicting a
company's liquidity, or its ability to meet current
expenses using currently available resources. Cash
flow statements are useful for providing a business
with a general idea of how it will make ends meet in
the short term. But cash flow statements do not
show the full complexity of a business' strategies and
resources for staying afloat or growing, and they
depend on assumptions that are not always accurate.
AT THE END...
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56. ACKNOWLEDGMENTS
Prof. Ramola Kumar
Prof. N.K Gupta
Sony Ma’am
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57. THANK YOU!
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