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FINANCIAL STATEMENT ANALYSIS

Presentation Topic:

Cash Flow Statement

Presented by:

Badar Munir 331

Kamran Bangash 308

Moin Ali Baig 328

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CASH FLOW STATEMENT

“A summary of a firm's cash receipts and cash payments during a period of time.”

“Firm’s cash inflows and outflows during a period of time.”

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CASH FLOW STATEMENT

Cash inflows: The money coming into the business.

Cash outflows: The money going out from the business.

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CASH FLOW STATEMENT

Cash InflowsCash Outflows Business

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IMPORTANCE OF CASH FLOW STATEMENT

Internal personnel and external entities will use the statement of cash flows as an analytical tool and used for analysis of firm.

A cash flow provides an investor insight into a company's credit worthiness and overall financial health. 

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USES OF CASH FLOW STATEMENT

1. It helps the newly formed companies to know their inflow and outflow of cash.

2. It helps the investors to judge whether the company is financially sound or not.

3. It helps the company to know whether it will be able to cover the payroll and other expenses.

4. It helps the lenders to know the company’s ability to repay.

5. These statements help to have an accurate analysis of the firm’s ability to meet its current liabilities.

6. A cash flow statement is helpful for planning and managing future financial commitments.

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USERS OF CASH FLOW STATEMENT

1. Managers (Internal)

2. Potential lenders or creditors

3. Investors

4. Students

5. Govt.

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CASH FLOW STATEMENT

The cash flow statement is partitioned into three segments.

1. Operating activities2. Investing activities3. Financing activities

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Cash Flow Statement

Operating activities:

Investing activities:

Financing activities:

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Typical cash inflows Typical cash outflows

What are some of the typical cash inflows from operating activities?`

Cash Flows from Operating Activities

Interest revenue

Sales of goodsand services

Dividend revenue

What are some of the typical cash outflows from operating activities?

Merchandise purchases

Payments of wages and

other expenses

Tax payments

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What are some of the typical cash inflows from investing activities?

Typical cash inflows Typical cash outflows

Sale of long-term

investments

Sales of fixed assets Purchase of

fixed assets

Purchase of long-term

investments

What are some of the typical cash outflows from investing activities?

Cash Flows from Investing Activities

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Cash Flows from Financing Activities

What are some of the typical cash inflows from financing activities?

Issuing preferred and common stock

Issuing bonds and long-term notes payable

Paying cash dividends

Repaying debt

What are some of the typical cash outflows from financing activities?

Acquiring treasury stock

Typical cash inflows Typical cash outflows

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(payments for expenses)

Operating

Increases in Cash Decreases in Cash

(receipts from sales of noncurrent assets)

Investing

(receipts from issuing equity and debt securities)

Financing

(payments for acquiring noncurrent assets)

Investing

Reporting Cash Flows

(receipts from revenues)

Operating

(payments for treasury stock, dividends, and redemption of debt

securities)

Financing

PREPARING A STATEMENT OF CASH FLOW

There are two methods of preparing the statementof cash flows

1. Indirect method

2. Direct method

The indirect method derives cash flows from accrual basis statements.

The direct method determines cash flows directly for each source or use of cash. 14

Accrual Basis Statements Cash Flow Statement

Income Statementitems & Changes inCurrent Assets andCurrent Liabilities

Operating activities:Adjust net income for accrualsand non-cash charges to get cash flows

Balance Sheet: Changes In Non-Current Assets

Investing activities:Inflows from sale of assets and Outflows from purchases of assets

Balance Sheet: Changes inNon-Current Liabilities

and Equity

Financing activities:Inflows and outflowsfrom loan and equitytransactions

The Statement of Cash Flows: Indirect Method

Cash flows from operating activities: Net Income $ XXX Adjustments (to arrive at cash flow from operations) $ XX (List of individual inflows and outflows) Net cash flow from operating activities $ XXX

Cash flows from investing activities: (List of individual inflows and outflows) $ XX Net cash flow from investing activities $ XXX

Cash flows from financing activities: (List of individual inflows and outflows) $ XX Net cash flow from financing activities $ XXX

Format of the Statement of Cash Flows: Indirect Method

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Note the following adjustments to net income in deriving operating cash flow:

Loss on sale of assets is added to net income

Gain on sale of assets is deducted from net income

Discount on bonds payable (as amortized) is added to net income

Premium on bonds payable (as amortized) is deducted from net income

Indirect Method: Special Items

Cash flows from operating activities: Cash receipts (individually): Inflows $ XXX Cash payments to suppliers (separately): outflows ($ XXX) Net cash flow from operating activities $ XXX

Cash flows from investing activities: (List of individual inflows and outflows) $ XX Net cash flow from investing activities $ XXX

Cash flows from financing activities: (List of individual inflows and outflows) $ XX Net cash flow from financing activities $ XXX

Format of the Statement of Cash Flows: Direct Method

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Comparative Balance SheetShiner Corporation

Assets Dec 31, 1996 Dec 31, 1995

Cash $37,000 $49,000

Accounts Receivable $26,000 $36,000

Prepaid Expenses $6,000 $0Land $70,000 $0Building $200,000 $0

Accumulated Depreciation $11,000 $189,000 $0

Equipment $68,000 $0

Accumulated Depreciation $10,000 $58,000 $0

Total Assets $386,000 $85,000

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Liabilities and Stockholder Equity

Accounts Payable $40,000 $5,000

Bonds Payable $150,000 $0

Common Stock $60,000 $0

Retained Earnings $136,000 $20,000

Total Liabilities and Stockholder Equity $386,000 $85,000

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Income StatementShiner Corporation

Revenue $492,000

Operating Expenses $269,000

Depreciation $21,000 $290,000

Income before Income Taxes $202,000

Income Tax Expense $68,000

Net Income $134,000

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Statement of Cash FlowsCash Flow from Operating ActivitiesNet Income $134,000

Adjustments to reconcile net income to net cash

Accts Receivable decrease $10,000

Prepaid Expense increase ($6,000)

Accts Payable Increase $35,000

Depreciation $21,000

$60,000

Net cash provided from Operating Activities $194,000

Investing Activities

Land Purchase ($70,000)

Building Purchase ($200,000)

Equipment Purchase ($68,000) ($338,000)

Financing Activities

Dividend payment to shareholders

($18,000)

Issuance of Bonds Payable $150,000 $132,000

Net Decrease in Cash ($12,000)

Cash Jan 1, 1996 $49,000

Cash Dec 31, 1996 $37,000