6 - Cash Flow Statement.pdf

8/17/2019 6 - Cash Flow Statement.pdf

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STATEMENT OF CASH FLOW


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A statement reporting the impact of a

firm’s operating, investing , and financing

activities on cash flows over accounting

period.


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A statement reporting the impact of afirm’s operating, investing , and financing

activities on cash flows over accounting

period.

Operating activities

include the net income, depreciation,

amortization and changes in working capitalother than cash and short term debt.


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Depreciation

The charge to reflect the cost of tangible

assets (plant and equipment) used up in the

production process. It is not a cash outlay

Amortization

The noncash charge similar to depreciation

except that it is use to write off the costs of

intangible assets (patents, copyrights, trademarks

and goodwill.)


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Working Capital (WC)

also known as net working capital, or working capital

ratio, is a measure of both a company's efficiency and

its short-term financial health. The working capital

ratio is calculated as:

Working capital = current assets – current liabilities

• company is able to pay off itsshort term liabilitiesIf workingcapital is +

• company is currently unable to meetits short term liabilities with its

current assets

If working

capital is -


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Net Income

+ Depreciation and amortization

+ Decreases in current assets

- Increases in current assets

+ Increases in current liabilities

- Decrease in current liabilities


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Investing activities

include purchases and sales of fixed assets


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Investing activities

include purchases and sales of fixed assets

FIXED ASSETSpurchasing or acquisition → cash is reduced

selling → cash is increased


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Financing activities

include raising cash by issuing short term debt, long

term debt, or stock, or using cash to pay dividends or

to buy back outstanding stocks or bonds

SECURITY TRANSACTIONS AND DIVIDEND

PAYMENTSissuance of stocks or bonds → increase in cash

payment of outstanding debts

buying back of stocks

payment of dividends

decrease in

cash


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Current assets

Long-term assets

Current liabilities

Long-termliabilities

Stockholder’sEquity

Operating cash

flows

Operating cash

flows

Investing cash

flows

Financing cash

flows


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Its main advantages are as follows:

(i) Planning and Co-ordination of Financial Operations. Cash Flow

Statement is useful is evaluating Financial policies and current cashposition. Since cash is the basis for carrying on operations, the Cash Flow

Statement prepared on an estimated basis for the next accounting period

will enable the management to plan and co-ordinate the financial

operations probably. The management comes to know how much cash is

needed in the future and at what time and how can it be arranged-how

much internally and how much from outside. It is especially useful in

preparing cash budgets.

(ii) A Control Device. Cash Flow statement is also a control device for the

management. A comparison of cash flow statement of previous year with

the budget for that year would indicate to what extent the resources of theenterprise were raised an applied according to the plan. Thus a

comparison of original forecast with actual results may highlights trends of

movement that might otherwise go undetected.


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(iii) Useful to internal Financial Management. Since it gives a clear

picture of cash inflow from operations (and not income flow of operation),

it is, therefore, very useful to internal financial management inconsidering the possibility of retiring ling-term debts, in planning

replacement of plant facilities or in formulating dividend policies.

(iv) Profit and Cash Positions. It enables the management to account

for situation when business has earned huge profits yet run withoutmoney or when it has suffered a loss and still has plenty of money at the

bank.

(v) Short-term Financial Decisions. Cash Flow Statement helps the

management in taking short-term financial decisions. Suppose, if firmwants to know its state of solvency after one month from to date, it is

possible only from Cash Flow analysis and not from Fund Flow

Statement. Shorter the period, greater is the importance of Cash Flow

Statement.


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Your also paid dividends of Php51, 000. With this,

you started to do a cash flow statement to get on

with the analysis. How would the cash flowstatement look like?


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Assets January December

Increase/ (Decrease)Cash 62,000.00 38,000.00 (24,000.00)

Accounts Receivable 73,000.00 108,000.00 35,000.00

Inventories 136,000.00 222,000.00 86,000.00

Prepaid Expenses 41,000.00 13,000.00 (28,000.00)

Current Assets 312,000.00 381,000.00 69,000.00

Equipment 236,000.00 486,000.00 250,000.00Less: Depreciation 73,000.00 121,000.00 48,000.00

Net, Equipment 163,000.00 365,000.00 202,000.00

TOTAL 475,000.00 746,000.00 271,000.00

Liabilities and

Stockholder’s Equity

Accounts Payable 76,000.00 85,000.00 9,000.00

Other current liabilities 32,000.00 56,000.00 24,000.00

Bonds Payable 56,000.00 20,000.00 (36,000.00)

Long-term bank borrowing 35,000.00 89,000.00 54,000.00

Common stock 125,000.00 203,000.00 78,000.00

Retained Earnings 151,000.00 293,000.00 142,000.00

TOTAL 475,000.00 746,000.00 271,000.00

C ASH FLOW STATEMENT E XAMPLE


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Net income = ?!?!


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Recall:

R/E (end) = R/E (beg) + net income – dividends


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Recall:

R/E (end) = R/E (beg) + net income – dividends

293,000 = 151,000 + net income – 51,000


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C


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Operating

Net Income 193,000.00

Depreciation 48,000.00 241,000.00 Accounts Receivable (35,000.00)

Inventories (86,000.00)

Prepaid Expenses 28,000.00

Accounts Payable 9,000.00

Other Current Liabilities 24,000.00 (60,000.00)

Investing

Equipment (250,000.00) (250,000.00)

Financing

Bonds Payable (36,000.00)LT Bank Borrowing 54,000.00

Common Stock 78,000.00

Dividends (51,000.00) 45,000.00

Net Decrease in Cash (24,000.00)

Cash and Cash Equivalents (Jan.1) 62,000.00

Cash and Cash Equivalents (Dec.31) 38,000.00



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Assets January December

Increase/ (Decrease)

Cash 62,000.00 38,000.00 (24,000.00) Accounts Receivable 73,000.00 108,000.00 35,000.00

Inventories 136,000.00 222,000.00 86,000.00

Prepaid Expenses 41,000.00 13,000.00 (28,000.00)

Current Assets 312,000.00 381,000.00 69,000.00

Equipment 236,000.00 486,000.00 250,000.00

Less: Depreciation 73,000.00 121,000.00 48,000.00

Net, Equipment 163,000.00 365,000.00 202,000.00

TOTAL 475,000.00 746,000.00 271,000.00

Liabilities and

Stockholder’s Equity

Accounts Payable 76,000.00 85,000.00 9,000.00

Other current liabilities 32,000.00 56,000.00 24,000.00

Bonds Payable 56,000.00 20,000.00 (36,000.00)

Long-term bank borrowing 35,000.00 89,000.00 54,000.00

Common stock 125,000.00 203,000.00 78,000.00

Retained Earnings 151,000.00 293,000.00 142,000.00TOTAL 475,000.00 746,000.00 271,000.00


CASH FLOW STATEMENT


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Assets JANUARY DECEMBER

Cash 62,000.00 38,000.00

Accounts Receivable 73,000.00 108,000.00

Inventories 136,000.00 222,000.00

Prepaid Expenses 41,000.00 13,000.00

Current Assets 312,000.00 381,000.00

Equipment 236,000.00 486,000.00

Less: Depreciation 73,000.00 121,000.00

Net, Equipment 163,000.00 365,000.00

TOTAL 475,000.00 746,000.00

Liabilities and Stockholder’s Equity Accounts Payable 76,000.00 85,000.00

Other current liabilities 32,000.00 56,000.00

Bonds Payable 56,000.00 20,000.00

Long-term bank borrowing 35,000.00 89,000.00

Common stock 125,000.00 203,000.00

Retained Earnings 151,000.00 293,000.00

TOTAL 475,000.00 746,000.00

You are the owner of a garment company and was wondering how cash

flowed on your operations. Your Accountant gave you the January and

December balance sheets and relayed that you had a net profit of $ 193,000

for the year.


CASH FLOW STATEMENT


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Assets JANUARY DECEMBER

Cash 62,000.00 38,000.00

Accounts Receivable 73,000.00 108,000.00

Inventories 136,000.00 222,000.00

Prepaid Expenses 41,000.00 13,000.00

Current Assets 312,000.00 381,000.00

Net, Equipment 163,000.00 365,000.00

TOTAL 475,000.00 746,000.00

Liabilities and Stockholder’s Equity Accounts Payable 76,000.00 85,000.00

Other current liabilities 32,000.00 56,000.00

Bonds Payable 56,000.00 20,000.00

Long-term bank borrowing 35,000.00 89,000.00

Common stock 125,000.00 203,000.00

Retained Earnings 151,000.00 293,000.00

TOTAL 475,000.00 746,000.00

You are the owner of a garment company and was wondering how cash

flowed on your operations. Your Accountant gave you the January and

December balance sheets and relayed that you had a net profit of $ 193,000for the year.



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C ASH FLOW STATEMENT (FIXED ASSETS, NET)

Fixed asset (end / new)

+ depreciation

- Fixed asset (beg / old)

Residual

Use of cash (e.g. acquisition)

Source of cash (e.g. selling)


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2009 2008

Income Tax Payable $ 8,130 $ 8,240

Plant and Equipment 54,600 51,400

Accumulated Depreciation 18,000 13,500

Accounts Payable 12,140 13,610

Inventory 14,280 12,430

Cash 16,400 17,250

Capital Stock 12,000 8,000

Accounts Receivable 18,920 16,480

Accrued Wages 7,320 7,890Notes Payable 24,000 30,000

Prepaid Insurance 2,630 2,280

Retained Earnings 19,240 13,600

Short-term Bank Loans 6,000 5,000

The following are the ABC Company’s year-end balance sheets for December 31

for the past two years ..

Required: Cash Flow Statement


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The following are the ABC Company’s year-end balance sheets for

December 31 for the past two years . Prepare cash flow statement.

. ACCOUNTS 2010 2009 Increase /

Decrease

Income Tax Payable $8,130 $8,240 ($110)

Plant and Equipment 54,600 51,400 $3,200

Accumulated Depreciation 18,000 13,500 $4,500 Accounts Payable 12,140 13,610 ($1,470)

Inventory 14,280 12,430 $1,850

Cash 16,400 17,250 ($850)

Capital Stock 12,000 8,000 $4,000

Accounts Receivable 18,920 16,480 $2,440 Accrued Wages 7,320 7,890 ($570)

Notes Payable 24,000 30,000 ($6,000)

Prepaid Insurance 2,630 2,280 $350

Retained Earnings 19,240 13,600 $5,640

Short-term Bank Loans 6,000 5,000 $1,000


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Financial statements for Mabini Construction Company are given 2009 and 2010

in summary form. The president of the company is considering expansion and would like

your views on the firm’s ability to generate funds.

Net sales 8,716

Cost of construction

billed 5,552

Operating expenses 1,085 Depreciation expense 232

Interest expense 290

Net income 1,557

2010 2011

Cash 386 607

Marketable securities 920 1,320

Accounts receivable 1,472 1,890 Inventory 746 1,046

Plant and equipment (net) 3,762 3,816

Total assets 7,286 8,679

Accounts payable 856 831

Bank loans payable 482 643

Long-term notes payable 1,800 1,200

Common stock 2,500 3,700

Retained earnings 1,648 2,305

Total equities 7,286 8,679

Mabini Construction Company

Income Statement for the Year 2011

(in thousand)

Mabini Construction Company

Balance Sheet for Year 2010 - 2011(in thousand)

The following financial statements are from Lucena Company in ($):


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g p y ($)

Dec. 31, 2010 Dec. 31, 2011

Cash 14,000 16,000

Accounts Receivable (net) 22,000 28,000

Inventories 65,000 55,000

Fixed Assets (net) 85,000 79,000

TOTAL ASSETS 186,000 178,000

Accounts Payable 30,000 15,000

Bonds Payable 60,000 75,000

Common Stock (par value of $10) 60,000 60,000

Retained Earnings 36,000 28,000

TOTAL L AND SE 186,000 178,000

INCOME STATEMENT FOR 2011Sales 360000

Cost of Goods Sold 240000

Gross Margin 120000

Operating Expenses (including $20,000 of depreciation expense) 100000

Income before Taxes 20000

Income Taxes 8000

Documents

6 - Cash Flow Statement.pdf