Cashflow Statement

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A Finance Survival Kit

GEM2508Frederick H. [email protected]

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The Cash Flow Statement

Lecture 3

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Today’s Lecture

Basic Excel

Understand the elements of the Cash Flow Statement

Make a simple Cash Flow Statement with MS Excel

Where does it go??

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Excel Basics – GraphsGraphs are easy to make. E.g. type some numbers and select them.Then go to the graph tool button and click on it.A handy wizard will pop up that gives you many options but for starters you can just click next.

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Excel Basics – GraphsAnd this is the result that we get.

The graph can be moved around and of course there are many options for labeling and representing the data.

When selecting a graph by clicking on it, the data are highlighted by a colored box (blue in this case).

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The Solver can be found in the Tools menu of Excel. If it’s not there, it can be installed by going to the “Add-ins” menu item and selecting the Solver Add-in.

The power of the solver is that is can do mathematics without formulas. This is extremely useful when formulas are difficult or impossible to find.

Excel Basics – Solver

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For example, we have the situation to the left and we would like to find a value for cell B2 such that our calculation in cell B5 gives 2.5 as a result.

Of course, we could easily do this by deriving a simple formula.

But this time, let us use the solver.

Go to the Tools menu and click on Solver.


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Click Solve….

Select the Target Cell, the value and choose which cell should be changed.


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The Solver will try to find a solution and automatically enter it in the spread sheet.

A box asks you to confirm the solution.

Click OK and we’re done.


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Excel Basics – If-Then

The If-then statement allows you to do logical tests.In this case we compare two numbers and indicate whether the first number is bigger or smaller.

Note the quotation marks. These indicate that the text between them is a so-called string, i.e. actual text and not the name of a variable or so.

The syntax of the if-then statement is given by:

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Where does it go?

Help!?

?In daily life, we all know the experience .. Where did the money go? It’s good to know!In business it’s essential to know!

Holiday ..

Cash Flow

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Cash Flow Statement

The Cash Flow Statement is the third of the three basic financial statements. It is closely related to matters concerning the daily operation of a company.

The Cash Flow Statement shows where the money goes (out-flows) and where it comes from (in-flows) during a certain period of time.

It also shows the net in- or out-flow during that period of time. This is an extremely important number in the financial management of a company!

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One way to look at the difference between the three basic financial statements.

While the Balance Sheet shows cash balances and the Income Statement where the money comes from or goes to, the Cash Flow Statement shows why cash increased or deceased.

Cash Flow Statement

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In other words:

+ Beginning Cash Balance

- Cash Out-Flows (Uses)

+ Cash In-Flows (Sources)

= Ending Cash Balance

Cash Flow Statement

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The Cash Flow Statement is usually divided into three sections:

• Cash Flows from OperationsThese are the cash flows generated by the daily running of thebusiness. E.g. the buying and selling of goods.

• Cash Flows from InvestmentsUsually, with investments one means here fixed assets like

plantand equipment.

• Cash Flows from FinancingLoans play an important part in most businesses. Here,

mainly, thecash flows related to the repayment of loans or the taking up

of newloans are listed. This item could also e.g. contain the cash flows from issuing

stock.

Cash Flow Statement

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A B C D E F G23 Ever Profit International4 Cash Flow Statement for the Year ended Dec 31, 199956 Cash Flows from Operations7 Receipts8 Interest received from Investment 2009 Payments from Customers 1200010 Others 34011 Disbursements12 To suppliers -480013 To employees -500014 Others -20015 Net Cash Flow from Op. Activites 2540 =Sum(G7:G14)16 Cash Flows from Investing Activities17 Purchase of Equipment -600018 Sale of Equipment 100019 Net Cash Flow from Inv. Activities -5000 =SUM(G17:G18)20 Cash Flows from Financing Activities21 Taking up of a long term loan 1200022 Payment of Dividends to Share Holders -50023 Net Cash Flow from Fin. Activities 11500 =Sum(G21:G22)24 Net change in Cash Balance 9040 =G15+G19+G23

Let’s first clean this up a bit …

and then look at it in more detail …

Incomprehensible!!!

But difficult??

A Simple Cash Flow Statement

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3456 Cash Flows from Operations7 Receipts8 Interest received from Investment 2009 Payments from Customers 1200010 Others 34011 Disbursements12 To suppliers -480013 To employees -500014 Others -20015 Net Cash Flow from Op. Activites 2540 =Sum(G7:G14)16 Cash Flows from Investing Activities17 Purchase of Equipment -600018 Sale of Equipment 100019 Net Cash Flow from Inv. Activities -5000 =SUM(G17:G18)20 Cash Flows from Financing Activities21 Taking up of a long term loan 1200022 Payment of Dividends to Share Holders -50023 Net Cash Flow from Fin. Activities 11500 =Sum(G21:G22)24 Net change in Cash Balance 9040 =G15+G19+G23

Ever Profit InternationalCash Flow Statement for the Year ended Dec 31, 1999 Use the

Center and Merge Button

Change the Font

Make the total bold

Underline before the subtotals

Make the main items italic


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Many accountants compute the amounts for the Cash Flow Statement by using the Income Statement and the changes in the related Balance Sheet accounts.

This is often called the T-account approach. Of course this only works if the relevant information is actually listed in the Income Statement and Balance sheet.

Let us have a look at the items in the cash flow statement one by one.


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Cash Flows from Operations

Receipts Here the most important receipts from daily operations for thebusiness are listed. It is important to realize that the choice of whatto list and what not is dependent on the nature of the company.

DisbursementsHere the most important disbursements necessary for the dailyoperations are listed. Again, the choice of what to list and what notdepends on the nature of the company.

Elements of a Cash Flow Statement

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Cash Flows from Investing Activities

Purchase of Equipment Most businesses cannot operate without some kind of investment.In order to get (and keep) a company running, it needs to buy certain equipment like e.g. computers and tools. Usually, suchitems can be used for many years which is why they are not listedunder Cash Flow from Operations but separately.

Sale of EquipmentOf course one can also sell equipment previously bought. E.g. whenone wants to upgrade or when one no longer wants it. Think ofSingapore Airlines always wanting to have a nice new fleet. What todo with those old planes? One option is to sell them.


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Cash Flows from Financing Activities

Long Term Loan Knowing when and where to borrow money is an important aspectof management. If you borrow at the wrong moment at the wrongplace you might end up in trouble. (Think Asian Crisis). On theother hand, if you have a great idea and give up on it due to lack offunds you might loose a fantastic opportunity.Since cash inflows (or outflows) due to loans are not part of dailyoperations, they are listed separately here.

Payment of DividendsOf course the idea of ‘investing’ in a company as a shareholder isto get more money back than one puts in. Some companies return apart of their profits to the shareholders as dividends as a kind ofinterest on their shares (note: this is usually a rather small amount).


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Net Change in Cash Balance

The net change in cash balance is an important indicator for how well the company will be able to continue doing business.

If the net change is strongly negative and the company has little or no cash left, it will almost certainly need new loans. It is good to know that one needs to plan for that.

On the other hand if the cash flow is positive and there are little debts, extra cash for new investments or for dividends will be available.


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Now let us look at how we can actually obtain some of the items from the Balance Sheet and the Income Statement.

Cash Flow from Operating Activities

Receipts

Disbursements

Payments from Customers

= Sales - Change in Accounts Receivable

To Suppliers = Cost of Goods sold + Change in Inventory – Change in Accounts

Payable (for Inventory)


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Example of a Cash Flow Statement

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Example of a Cash Flow Statement

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The Cash Flow Statement provides important information regarding the cash requirements of a company.

(Parts of) the Cash Flow Statement can be derived from the Balance Sheet and the Income Statement by analyzing changes.

Key Points of the Day

Technology

Cashflow Statement