Cash Flow Statement Analysis

Categories

 Operating Activities :converts the items reported on the

income statement from the accrual basis of accounting to
cash
 Investing Activities : reports the purchase and sale of long
term investments and property, plant and equipment
 Financing activities :reports the issuance and repurchase of
the company’s own bonds and stock and the payment of
dividends.
 Supplement information : reports the change of significant
items that did not involve cash and reports the amount of
income taxes paid and interest paid.
 What can the statement of Cash Flows Tell
us?

1. Cash from operating activities is compared to the company’s income.

 High quality
 Red flag
2. Cash is king. Cash flowing in and out of company. If a company is generating more
cash than its use,
 company increase it dividend,
 buy back some of shares,
 reduce debt,
 acquire another company,
3. Some financial models based on cash flow
While interpreting cash flow statement

 Noncash item like depreciation, diminution of value of assets

 Bad debt
 Profit or loss on fixed assets
 Interest expenses and income
 Current assets and current liabilities(any major increase or
decrease)
 Deferred revenue expenditure
 Investment made in other companies,
 Profit or loss on sale of investment