Cash flow statement analysis

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Cash flow statement analysis
Dr. T.K. Jain.

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Centre for social entrepreneurship Bikaner M: 9414430763 tkjainbkn@yahoo.co.in www.afterschool.tk, www.afterschoool.tk
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What is cash?
• Cash or bank balance.

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Methods of cash flow analysis?
• 1. direct method • 2. indirect method

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Direct method
• Here you have to take each item individually and prepare cash flow statement to show the net impact and identify the flow of cash.

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Indirect method….
• Take profit from P & L account and adjust it for non-cash items.

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Three componenents of cash flow statement…
1. Cash from operations 2. Cash from financing 3. Cash from investing

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Cash from operations…
• Indirect method : • Profit • Add + all non cash expenses / provisions etc. • Less = all non cash income etc.

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Cash from financing
• If equity, debt, etc. increased, that means, there is more cash from financing • If equity, debt etc. decreased, that means there is application of cash.

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Cash from investing….
• If fixed assets and investments increased, it means, there is application of cash • If fixed assets & investments reduced, it means there is source cash and so cash from investing should increase.

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What to add to profit (indirect method)?
• • • • • • Depreciation Loss on sale of fixed assets Amortisation of intangible assets Impairment Bad debt Interest (it will go to cash from investing or cash fro financing acticity) • (all other non – cash expenses/ provisions).
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What to deduct from profit (indirect method)
• Profit on sale of fixed assets

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Example:
• Profit : 5000 • (after deducting salary 1000, purchase 15000, depreciation 1000, goodwill written off 1000, rent 1000, wages 5000) • Solution: • Cash from operations (indirect method): • 5000 + 1000 (dep) + 1000 (goodwill) • = 7000 answer.
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