Cash Flow Statement

PRESENTED BY:
MONOJIT ROY
PUNIT BAIYA
SHASANK
SMITA SACHHAN
VIGNESH
 What is Cash Flow Statement

It reflects an enterprises major sources of cash

receipts and cash payments.
Cash equivalents are short term, highly liquid
investments that are both a) readily convertible to
known amount of cash and b) so near their maturity
that they present insignificant risk of change in
value.
 Use of CFS

The enterprise’s ability to meet its obligation, pay

dividends and its need for the external financing.
Balance sheet or Income statement never gives us
the idea about net cash in hand during a point of
time.
The enterprise’s ability to generate positive future
net cash flow.
 Structure of Cash Flow

Cash flow from “Operating Activities”

Cash flow from “Investment Activities”
Cash flow from “ Financing Activities”

These classification entirely depends on the nature

of the business.
 Operating Activities

Cash inflows from Operating activities -- common

examples:
 Cash sales of Goods or Services
 Advances from customers
 Collection of debtors
Cash inflows from Operating activities -- common
examples:
 Payments to suppliers for materials and for services
 Payments of employees for services
 Payments to Govt. for taxes and duties
 Investing Activities

Cash inflows from Investing activities -- common

examples:
 Cash sales of Fixed Assets
 Sales of Bonds and Shares of other enterprises
 Collection of Loans
 Interest and dividends received on loans and investments.
Cash inflows from Investing activities -- common
examples:
 Payments to (including advances or down payments) buy Fixed
assets
 Disbursement of loans
 Payments to buy bonds and shares of other companies
 Financing Activities

Cash inflows from Financing activities -- common

examples:
 Proceeds from issuing shares and bonds
 Proceeds from loans
Cash inflows from Operating activities -- common
examples:
 Payments to buy back or redeem own shares
 Principal Payments of bonds and loans
 Payments of interest and dividends
Preparation of Cash Flow Statement for Operating Activities

Direct Method or Gross basis

 It shows major classes of cash receipts and payments

Indirect Method or Net Basis

 This start with net profit and adjusts it for revenue and
expense items that did not involve cash receipts or cash
payments in the current period to arrive at net cash flow.
 Indirect Method in Operating Activities

Cash received from customers

= Sales
+ Decrease (- Increase) in Gross Debtors
– bad Debt Written off
Cash Paid to Suppliers and Employees
= COGS
+ Selling & Administrative Expenses
– Depreciation Expanses
– Bad Debt Expenses
+ Increase (- Decrease) in Inventories
+ Increase (- Decrease) in Prepaid Expenses
+ Decrease (-Increase) in Creditors
+ Decrease (-Increase) in Bills Payables
CFS for Investment and Financing activities
Non – Cash Non – operating Items Working Capital Items
Items
+ Depreciation + Interest Expenses + Decrease in Debtors
+ Depletion + Loss on sale of Fixed assets + decrease in Inventories
+ Amortization + Loss on sale of Investment + decrease in Prepaid
Expenses
+ Bad Debt + Increase in Creditors
Expenses
+ Increase in Bills Payable
- Excess Provision - Interest Income - Increase in Debtors
written back
- Gain on sale of Fixed asstes - Increase in Inventories
- Gain on sale of Investmens - Increase in Prepaid
Expenses
- decrease in Creditors
- Decrease in Bills Payable
 Free Cash Flow

The difference between net cash flow from operating

and investing activities
Positive free cash flow
 The net cash generated from operations is more than what a
firm can use in investing in new assets.
 Positive Free cash flow for firms that have stable levels of
operations and normal growth
Negative free cash flow
 The firm is investing more cash in new assets than it generates
from operations
 Negative Free cash flow for firms that are growing rapidly and
are investing heavily in expansion, modernization and
renovation of its operation and acquisition of other enterprises
as part of its operation
For calculating free cash flow, short term
investments in other entities for trading or
speculation should be excluded.
Better apply for stable firms than growing firms
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