CASH FLOW ANALYSIS (A) Operating Activities: Entire cashflow of RIL during 2010-11 have been contributed by operating

g activities. This typically indicates a very strong cash position. RIL has very high cash inflow on account of provisions for contingencies, sale and depreciation. This indicates a very high hidden reserves and strong cash position. RIL has net cash inflow in respect of working capital.

(B) Investing Activities: RIL has net cash outflaws for fixes assets. This indicates RIL is purchasing more fixed assets. In general, this is an indication of expanding business. Fixed assets are income-producing assets, which are expected to produce higher future revenues. RIL had significant outflow towards investment. It indicates a favorable cash position.

(C)Financing Activities: RIL had a substantial net inflow from borrowings. It is, however, not clear whether theinflow was on account of long-term debt or working capital financing. The analyst,therefore, needs to look at the schedules of loans in the balance sheet. Clear disclosureis required to facilitate analysis. (It is on account of working capital as per the schedule.) RILs dividend and dividend tax outflow at Rs.2,219.45 crore against net cash inflow from operating activities at Rs. 20,490.22 crore is to high-10.83%. Seen the background of net outflow into fixed assets of Rs.21,829.48 crore only thistypically shows that the management has no aggressive growth plans on the anvil, justnormal plans. This typically means that cash inflow from operations in future will have only steadygrowth, unless the company reverses its policy of aggressive dividend payouts.

 RILs financing activities reflect a favorable cash position in the sense that there is a net outflow despite outflow into fixed assets.

(D) Quality of cash position: The information provided by the cash flow statement of RIL appears to indicate a highquality of cash position. The reasons are simple and more than clear. It has beengenerating cash from operating activities and utilizing this money in expanding itbusiness and paying dividends.

(E) Ability to generate positive cash flow from operations in future: RIL has generated cash from operations in both the years. The amount, thoughtincreased this year, is more or less the same as last year. Information provided by itscash flow statement establishes its ability to generate steady positive cash flows fromoperations in future. It appears from this information, and as supported by the balance sheet, that RILs debts are not high in comparison to its size. Therefore, it is in a very comfortable position to meet its obligations towards lenders as well as shareholders.