Startup Finance Guide: Building Cash Flow Statements
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This presentation explains components of a cash flow statement, how they should be prepared, and crucial parameters for analyzing them. IntelleGrow is a unique venture-debt financing company that offers loans to businesses based on their viability and future performance. This slide deck was prepared for Sankalp Forum. The Forum is an enabler of socially oriented early-stage businesses, and catalyzes investments, mentors and international networks to do so. Read more about Sankalp at www.sankalpforum.com
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Startup Finance Guide: Building Cash Flow Statements
- 1. Startup Financing Guide: Cash Flow Statements www.sankalpforum.com || www.intellegrow.com 1
- 2. What is Cash Flow Statement Components of a Cash Flow Statement Preparing Cash Flow Statement Analyzing Cash Flow Statement 1/8/2014 Confidential 2
- 3. What is Cash Flow Statement Components of a Cash Flow Statement Preparing Cash Flow Statement Analyzing Cash Flow Statement 1/8/2014 Confidential 3
- 4. What is Cash Flow Statement : Overview • Cash Flow Statement is the most important financial statement you prepare for your Debt and equity are two main business instruments to capitalise a business. • It traces the flow of funds for working capital into and out of your business Deciding which to use at different stages in the lifecycle of a • business, depends on the long- flows should be prepared as frequently as possible, either For a Small business, cash monthly of the business term goals or quarterly and the amount of control managers • wish to maintain. is to provide information regarding a company’s cash receipts and cash Primary purpose payments • Cash Flow Statement compliments the income statement and balance sheet • Cash flow statement explains the change during the period in cash and cash equivalent 1/8/2014 Confidential 4
- 5. What is Cash Flow Statement Components of a Cash Flow Statement Preparing Cash Flow Statement Analyzing Cash Flow Statement 1/8/2014 Confidential 5
- 6. Components of a Cash Flow Statement • Operating Activities The statement provides information about the cash generated from a company’s daily operating activities. Operating activities are those which produce either revenue or are the direct cost of producing a product or service • Investing Activities Investing activities include buying and selling noncurrent assets which will be used to generate revenues over a long period of time; or buying and selling securities not classified as cash equivalents • Financing Activities • Financing activities include borrowing and repaying money, issuing stock (equity) and paying dividends 1/8/2014 Confidential 6
- 7. What is Cash Flow Statement Components of a Cash Flow Statement Preparing Cash Flow Statement Analyzing Cash Flow Statement 1/8/2014 Confidential 7
- 8. Preparing Cash Flow Statement • Information used to prepare a cash flow statement is taken from the income statement for the current year and balance sheets for the past two years • Net Income is adjusted for deferrals and accruals • The purpose of these adjustments is to convert the accrual basis income statement to cash flow statement • Cash Flows Methods : Direct , Indirect Method and Cash Budget CONSTRUCTING CASH FLOWS – PRACTICAL CASE STUDY 1/8/2014 Confidential 8
- 9. What is Cash Flow Statement Components of a Cash Flow Statement Preparing Cash Flow Statement Analyzing Cash Flow Statement 1/8/2014 Confidential 9
- 10. Analyzing Cash Flow Statement Operating Activities The cash flow statement will tell you where money came from and how it was used. When analysing cash flow, the first place to look is the cash flow from operating activities. It tells you whether the firm generated cash or whether it needs a cash infusion. • A few periods of negative cash from operating activities is not by itself a reason for alarm if it is based on plans for company growth or due to a planned increase in receivables or inventories • However, if a negative cash flow from operating activities is a surprise to managers and owners, it may be undesirable • Owners and managers should pay attention to significant movement in each item of changes in working capital 1/8/2014 Confidential 10
- 11. Analyzing Cash Flow Statement Investing Activities The cash flow statement puts investing activities into perspective. At one glance, you can see whether or not a surplus in operations is being used to grow the company. A lack of investing activities, which is few purchases of new equipment or other assets, may indicate stagnant growth or diversion of funds away from the company Financing Activities The financing activities section of the cash flow statement will show repayments of debt, borrowing of funds, as well as injections of capital and the payment of dividends. As a company expands, this area of the cash flow statement will become increasingly important. It will tell outsiders how the company has grown and the financial strategies of management. 1/8/2014 Confidential 11