CASH FLOW ANALYSIS

JERISSE J.
PARAJES
PhEdD. student

DR. ROBERTO C. BUENAFLOR

Professor VI
Surigao State College of Technology
Surigao City
INTRODUCTION

The most common financial documents to the public:

income statements and statements of financial position
(traditionally known as Balance Sheet Statement)
USEFULNESS OF THE STATEMENT OF CASH FLOWS

■ although net income provides a long term measure of a

company’s success or failure, cash is its lifeblood

■ without cash, a company will not survive.

■ cash flow is the single most important element for

survival.
Assess and evaluate the following:
1. A company’s ability to generate positive future net cash flows

2. A company’s ability to meet its obligation and pay dividends

3. A company’s need for external financing

4. The reasons for differences between a company’s net income and

associated cash receipts and payments, and

5. Both the cash and noncash aspects of a company’s financing and

investing transactions during the accounting period.
The ff. information may also be obtained from the cash
flow statements:
1. The changes in net assets of an enterprise and its ability to affect
the amounts and timing of cash flows in order to adopt to
changing circumstances and opportunities.

2. The ability of the enterprise to generate cash and cash equivalents

and enables the users to develop models to assess and compare the
present value of the future cash flows of different enterprises.
3. It enhances the comparability of the
reporting of operating performance by
different enterprises because it eliminates the
effects of using different accounting
treatments for the same transactions and
events.
In addition, the statement of cash flows provide the means of
measuring a business firm’s:

a. Financial Liquidity
- which refers to the measures to cash of assets and
liabilities

b. Financial Flexibility
- which refers to a company’s ability to respond and adapt
to financial adversity and unexpected needs and
opportunities.
The basic approach to a cash flow statement

Definition of Cash -in preparing a statement of cash

flows, the term cash is broadly defined to include both
cash and cash equivalents.

Cash equivalents – consist of short term, highly liquid

investments such as treasury bills, SEC registered
commercial papers and money market funds.
CLASSIFICATION OF CASH FLOW ACTIVITIES
OPERATING ACTIVITIES
INFLOWS

Sales of goods
Revenue from services
Returns on interest earning assets (interest)
Returns on equity securities (dividends)
Receipts from contracts held for dealing and trading purposes
Tax refunds
OPERATING ACTIVITIES
OUTFLOWS

Payment for purchases of inventories

Payments for operating expenses (salaries, rent, insurance, etc)
Payments for purchases from suppliers other than inventory
Payments for lenders (interest)
Payment for taxes unless identified with financial and investing activities
INVESTING ACTIVITIES
INFLOWS
Sales of long-lived assets such as property, plant and equipment, intangibles
and other long term assets
Sales of debt on equity securities of other entities
Collection of loans (principal)
INVESTING ACTIVITIES
OUTFLOWS
Acquisition of long-lived assets such as property, plant and equipment,
intangible and other long term assets
Purchase of debt or equity securities of other entities
Loans (principal)
FINANCING ACTIVITIES
INFLOWS

Proceeds from borrowing (short-term and long-term)

Proceeds from issuing the firm’s own equity securities
FINANCING ACTIVITIES
OUTFLOWS

Repayment of debt principal

Repurchase of a firm’s own shares
Payment of dividends
Acquisition of the enterprise own shares
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