PowerPoint

Presentations for
Finance for
Non-Financial Managers:
Seventh Edition

Prepared by
Pierre Bergeron
University of Ottawa

Copyright © 2014 Nelson Education Ltd. 3–1

 CHAPTER 3
Statement of
Cash Flows

Copyright © 2014 Nelson Education Ltd. 3–2

 Learning Objectives
1. Explain the importance of managing cash flows.
2. Analyze cash flows by comparing two
consecutive statements of financial position.
3. Describe the basic structure of the statement of
cash flows.
4. Discuss the structure of the statement of cash
flows for not-for-profit organizations.

Copyright © 2014 Nelson Education Ltd. 3–3

 LO 2
Key Cash Flow Drivers

Copyright © 2014 Nelson Education Ltd. 3–4

 LO 1
Importance of Managing Cash Flow
$75,000 or 75%
Managers
Profit for the year
Internal
Investing Depreciation
inflow
Working capital
Outflow Operating activities
$100,000
Financing activities Equity

activities External Debt

inflow Leasing
Contributions
Investors
$25,000 or 25%

Copyright © 2014 Nelson Education Ltd. 3–5

 LO 2
Cash Flow Analysis
Statements of Inflows Outflows
2013 2012
Financial Position

Mortgage $150,000 $130,000 $ 20,000 ----

House 217,000 200,000 ---- $ 17,000
Term deposits 5,000 15,000 10,000 ----
Automobile 20,000 10,000 ---- 10,000
Visa account 2,000 1,000 1,000 ----
RRSP 28,000 25,000 ---- 3,000

Savings account 3,000 2,000 ---- 1,000

Total $ 31,000 $ 31,000

Copyright © 2014 Nelson Education Ltd. 3–6

John Badboy’s
LO 2
Statements of Financial Position
2013 2012 Inflows Outflows
Assets
House $ 178,000 $ 168,000 ----- $ 10,000
Car 30,000 16,000 ----- 14,000
Trailer 10,000 ----- ----- 10,000
Furniture 14,000 12,000 ----- 2,000
Term deposits --- 2,000 $ 2,000 -----
Cash in the bank 1,000 2,000 1,000 -----
Total assets $233,000 $200,000
Equity $ 98,000 $ 93,000 $ 5,000 -----
Liabilities
Trust company 120,000 100,000 20,000 -----
Bank loan 4,000 2,500 1,500 -----
Sears 3,000 1,000 2,000 -----
The Bay 2,000 500 1,500 -----
MasterCard 3,000 1,000 2,000 -----
Brother-in-law 3,000 2,000 1,000 -----
Total liabilities 135,000 107,000
Total equity & liabilities $233,000 $200,000 $ 36,000 $ 36,000
Copyright © 2014 Nelson Education Ltd. 3–7
Comparative Statements of Financial Position LO 2
(Futurama Ltd.)
Assets 2013 2012 Inflows Outflows
Non-current assets (at cost) $1,340,000 $ 1,050,000 ----- $ 290,000
Accumulated depreciation (140,000) (100,000) $40,000 ----
Non-current assets (net) 1,200,000 950,000
Current assets
Inventories 218,000 185,000 ----- 33,000
Trade receivables 300,000 280,000 ----- 20,000
Prepaid expenses 60,000 55,000 ----- 5,000
Cash and cash equivalents 22,000 18,000 ----- 4,000
Total current assets 600,000 538,000
Total assets $1,800,000 $1,488,000

Share capital $ 300,000 $ 285,000 15,000 -----

Retained earnings 50,000 -----
255,000 205,000
Equity 555,000 490,000
Liabilities
Long-term borrowings 800,000 600,000 200,000 -----
Current liabilities
Trade and other payables 195,000 175,000 20,000 -----
Notes payable 150,000 135,000 15,000 -----
Accrued expenses 20,000 18,000 2,000 -----
Current income taxes payable 80,000 70,000 10,000 -----
Total current liabilities 445,000 398,000

$352,000 $352,000
Total equity & liabilities $1,800,000 $1,488,000 47,500
97,500
$ 399,500 $ 399,500
Copyright © 2014 Nelson Education Ltd. 3–8
 LO 2
Futurama Ltd.
Statement of Income
For the year ended December 31, 2013

Revenue $2,500,000
Cost of sales (1,900,000)
Gross profit 600,000
Operating expenses
Salaries (300,000)
Rent (50,000)
Depreciation (40,000)
Other expenses (15,000)
Total expenses (405,000)
Profit before taxes 195,000
Income tax expense (97,500)
Profit for the year $ 97,500

Statement of Retained Earnings

For the year ended December 31, 2013
Retained earnings: beginning of the year $ 205,000
Earnings for the year $ 97,500
Less: Dividends (47,500) 50,000

Retained earnings: end of the year $ 255,000

Copyright © 2014 Nelson Education Ltd. 3–9

 LO 2
Rules to Identify Inflows and Outflows of Cash
Inflows of Outflows of
cash cash

Asset accounts

Equity accounts

Liability accounts

Copyright © 2014 Nelson Education Ltd. 3–10

 LO 3
Structure of the Statement of Cash Flows
Futurama Ltd.
Statement of Cash Flows
For the Year Ended December 31, 2013

1. Operating Activities
Profit for the year $97,500 SI
Depreciation 40,000 SI or
SFP
Adjustments in non-cash
working capital (11,000) SFP
Total $126,500

2. Financing Activities
Payment of dividends $(47,500) SRE
Long-term borrowings 200,000 SFP
Share capital 15,000 SFP
Total $167,500

3. Investing Activities
Purchase of non-current assets 290,000 SFP ($290,000)

Increase in cash $ 4,000 SFP

Cash at beginning of year 18,000

Cash at end of year 22,000 ($4,000)

Copyright © 2014 Nelson Education Ltd. 3–11

 LO 4
Statement of Cash Flows for NFP
Not-For-Profit Organization
Statement of Cash Flows
For the Year Ended December 31, 2013

1. Operating Activities
Excess of revenues over expenses
Depreciation of non-current assets
Adjustments in working capital

2. Financing and Investing Activities

Purchase of investments
Purchase of capital assets
Mortgage
Contributions of cash endowments

3. Net (decrease) Increase in Cash and Term Deposits

Cash and term deposits, beginning of year
Cash and term deposits, end of year

Copyright © 2014 Nelson Education Ltd. 3–12