Cash Flow Statement

2-1
 Cash Flow Statement

On the statement, cash flows are segregated

based on source:
Operating Activities:
• Involve the cash effects of transactions that enter into the
determination of net income.
• Manufacturing, Service, Supply & Distribution.
• Cash effects of transaction on income.
• Example: Cash flows resulting from sale of goods, purchase
of inventories and payment of operations expense.

2-2 LO 2
 Cash Flow Statement

Investing Activities:
• concern with buying (and selling) property, plants, and
equipment (PPE); acquiring and disposing of securities of
other entities;
• Acquiring / disposing of securities that are not cash
equivalent.
• Acquiring / disposing of productive assets.
• Lending money / collection on loans.

2-3 LO 2
 Cash Flow Statement

Financing Activities:
• include issuance and reacquisition of a firm's debt and capital
stock, and dividend payments.
• Borrowing from creditors / repaying the principal.
• Obtaining resources from owners.
• Providing owners with a return on investment.

2-4 LO 2
 Cash Flow Statement

Analysis:
• Firm’s ability to generate cash flows in the future.
• Firm’s capacity to meet cash obligations.
• Firm’s future external financing needs.
• Firm’s success in productivity managing investing activities.
• Firm’s effectiveness in implementing financing and investing
strategies.

2-5 LO 2
 Cash Flow Statement
(Indirect Method)

2-6
 Format of Indirect Method

Cash flows from Operating activities:

Net Profit before taxation xxx
Adjustment for:
• Depreciation xxx
• Investment income (xxx)
• Interest expense xxx
• Interest income (xxx)
• Loss on disposal of investment xxx
• Gain on disposal of P,P&E (xxx)
Operating Profit before working capital changes xxx
2-7 LO 2
 Format of Indirect Method

Cash flows from Operating activities:

• (Increase) / decrease in Receivables xxx
• (Increase) / decrease in Inventories (xxx)
• Increase / (decrease) in Payables xxx
Cash generated from Operations xxx

2-8 LO 2
 Format of Indirect Method

Cash flows from Investing activities:

• Purchase of Property, plant & Equipment (xxx)
• Proceeds from disposal of land (xxx)
• Purchase of equity investment (xxx)
• Interest received xxx
• Dividend received xxx
Net Cash inflow from Investing activities xxx

2-9 LO 2
 Format of Indirect Method

Cash flows from Financing activities:

• Proceeds from issue of share capital xxx
• Proceeds from long term loans xxx
• Redemption of preference shares (xxx)
• Repayment of long term loans (xxx)
• Dividend paid (xxx)
Net Cash inflow from Financing activities xxx
Net increase in cash and cash equivalents xxx
Cash and cash equivalents at beg. of period xxx
Cash and cash equivalents at end. of period xxx
2-10 LO 2
 Format of Indirect Method

Cash and cash equivalent

Beg. End.
of period of period
• Cash at bank xxx xxx
• Cash in hand xxx xxx
• Short – term investment xxx xxx
• Cash and cash equivalent (xxx) (xxx)
xxx xxx

2-11 LO 2
 Practice Questions

2-12 LO 2
 Practice Questions

2-13 LO 2
 Practice Questions

2-14 LO 2
 Practice Questions

2-15 LO 2
 Practice Questions

2-16 LO 2
 Prepare Cash Flow Statement?

2-17