CASH FLOW STATEMENT

Presented By : Jatin Mann Ashima Dawar Harshit Bansal Shreya Gupta

INTRODUCTION

Cash flow Statement is a statement showing inflows and outflows of cash during a particular period This statement assesses the ability for the enterprise to generate cash and cash equivalents. Predict future cash flows. Evaluate management decisions. Determine the ability to pay dividends to stockholders and payments to creditors. It also assesses the liquidity and solvency of the enterprise.

What is cash?

Cash in hand Cash in the bank Cash equivalents - highly liquid, short-term investments that can be converted into cash with little delay

Money-market investments Government Treasury bills

Basic form of cash flow statement

Cash Flow From Operating Activities

Direct method or indirect method (direct requires also a reconciliation of net income to cash flow from operating activities)

Cash Flow from investing activities Cash Flow from financing activities Total (positive or negative) cash flow is added to beginning cash balance and should result in ending cash balance

Definitions
Cash comprises of cash in hand and demand deposits with banks. Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Cash flows are inflows and outflows of cash and cash equivalents. Operating activities are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities. Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Financing activities are activities that result in changes in the size and composition of the owners capital (including preference share capital in the case of a company) and borrowings of the enterprise

Objectives
1. To provide information about the cash inflows and
cash outflows from operating, financing and investing activities of the firm. 2. To show the impact of the operating, financing and investing activities on cash resources. 3. To tell how much cash came in during the period, how much cash went out and what the net cash flow was during the period. 4. To explain the causes for changes in cash balance. 5. To identify the financial needs and help in forecasting future cash flows.

limitations

Not suitable for judging the liquidity Possibility of window dressing It ignores non-cash transactions It ignores the accrual concept of accounting No substitute for an income statement

Categories Of Cash Inflows/Outflows

Operating Activities Investing Activities Financing Activities

Operating Activities
Operating Activities are the principle revenue generating activities of the enterprise. Operating activities create revenues, expenses, gains, and losses.

Operating Activities

Cash Inflow
Cash Sale Cash received from debtors Cash received from fees and commission Royalty and other revenues

Cash Outflow

Cash purchase Payment to creditors Cash operating expenses Payment of wages Income tax

Investing Activities
Investing activities includes the acquisition and disposal of long term assets and other investments not included in cash equivalent. Investing activities increase and decrease long-term assets.

Investing Activities

Cash Inflow
Sale of fixed assets Sale of investments Interest received Dividend received

Cash Outflow
Purchase of fixed assets Purchase of investment

Financing Activities
Financing Activities are those activities that result in change in the size and composition of owners capital and various borrowings of the enterprise. Financing activities obtain cash from investors and creditors.

Financing Activities
Cash Inflow

Cash Outflow

Issue of shares Issue of debentures in cash Proceeds from long term borrowings Proceeds from short term borrowings

Cash repayment of amount borrowed Interest paid on loan Interest paid on debentures Dividend paid on equity Dividend paid on preference share capital

Cash flow statement format of indirect method

Add : Decrease in Current Assets Increase in Current Liabilities Less : Increase in Current Assets Decrease in Current Liabilities Cash generated from operating activities Income Tax paid Cash flow before extraordinary items (+) or (-) Extraordinary items

Net cash from operating activities

B. Cash flows from Investing Activities : Purchase of fixed assets Sale of fixed assets Purchase of investments (long term) Sale of investments (long term) Interest received Dividend received Net cash from investing activities

C. Cash flows from Financing Activities : Proceeds from issue of share capital Proceeds from long-term borrowings Repayment of long-term borrowings Interest paid Dividend paid Net cash from financing activities Net Increase (or decrease) in cash and cash equivalents (A+B+C) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

EXAMPLE