1
FINANCIAL STATEMENT ANALYSIS
Presentation Topic:
Cash Flow Statement
Presented by:
Badar Munir 331
Kamran Bangash 308
Moin Ali Baig 328
2
CASH FLOW STATEMENT
“A summary of a firm's cash receipts and cash payments during a period of time.”
“Firm’s cash inflows and outflows during a period of time.”
3
CASH FLOW STATEMENT
Cash inflows: The money coming into the business.
Cash outflows: The money going out from the business.
4
CASH FLOW STATEMENT
Cash InflowsCash Outflows Business
5
IMPORTANCE OF CASH FLOW STATEMENT
Internal personnel and external entities will use the statement of cash flows as an analytical tool and used for analysis of firm.
A cash flow provides an investor insight into a company's credit worthiness and overall financial health.
6
USES OF CASH FLOW STATEMENT
1. It helps the newly formed companies to know their inflow and outflow of cash.
2. It helps the investors to judge whether the company is financially sound or not.
3. It helps the company to know whether it will be able to cover the payroll and other expenses.
4. It helps the lenders to know the company’s ability to repay.
5. These statements help to have an accurate analysis of the firm’s ability to meet its current liabilities.
6. A cash flow statement is helpful for planning and managing future financial commitments.
7
USERS OF CASH FLOW STATEMENT
1. Managers (Internal)
2. Potential lenders or creditors
3. Investors
4. Students
5. Govt.
8
CASH FLOW STATEMENT
The cash flow statement is partitioned into three segments.
1. Operating activities2. Investing activities3. Financing activities
9
Cash Flow Statement
Operating activities:
Investing activities:
Financing activities:
10
Typical cash inflows Typical cash outflows
What are some of the typical cash inflows from operating activities?`
Cash Flows from Operating Activities
Interest revenue
Sales of goodsand services
Dividend revenue
What are some of the typical cash outflows from operating activities?
Merchandise purchases
Payments of wages and
other expenses
Tax payments
11
What are some of the typical cash inflows from investing activities?
Typical cash inflows Typical cash outflows
Sale of long-term
investments
Sales of fixed assets Purchase of
fixed assets
Purchase of long-term
investments
What are some of the typical cash outflows from investing activities?
Cash Flows from Investing Activities
12
Cash Flows from Financing Activities
What are some of the typical cash inflows from financing activities?
Issuing preferred and common stock
Issuing bonds and long-term notes payable
Paying cash dividends
Repaying debt
What are some of the typical cash outflows from financing activities?
Acquiring treasury stock
Typical cash inflows Typical cash outflows
13
(payments for expenses)
Operating
Increases in Cash Decreases in Cash
(receipts from sales of noncurrent assets)
Investing
(receipts from issuing equity and debt securities)
Financing
(payments for acquiring noncurrent assets)
Investing
Reporting Cash Flows
(receipts from revenues)
Operating
(payments for treasury stock, dividends, and redemption of debt
securities)
Financing
PREPARING A STATEMENT OF CASH FLOW
There are two methods of preparing the statementof cash flows
1. Indirect method
2. Direct method
The indirect method derives cash flows from accrual basis statements.
The direct method determines cash flows directly for each source or use of cash. 14
Accrual Basis Statements Cash Flow Statement
Income Statementitems & Changes inCurrent Assets andCurrent Liabilities
Operating activities:Adjust net income for accrualsand non-cash charges to get cash flows
Balance Sheet: Changes In Non-Current Assets
Investing activities:Inflows from sale of assets and Outflows from purchases of assets
Balance Sheet: Changes inNon-Current Liabilities
and Equity
Financing activities:Inflows and outflowsfrom loan and equitytransactions
The Statement of Cash Flows: Indirect Method
Cash flows from operating activities: Net Income $ XXX Adjustments (to arrive at cash flow from operations) $ XX (List of individual inflows and outflows) Net cash flow from operating activities $ XXX
Cash flows from investing activities: (List of individual inflows and outflows) $ XX Net cash flow from investing activities $ XXX
Cash flows from financing activities: (List of individual inflows and outflows) $ XX Net cash flow from financing activities $ XXX
Format of the Statement of Cash Flows: Indirect Method
17
Note the following adjustments to net income in deriving operating cash flow:
Loss on sale of assets is added to net income
Gain on sale of assets is deducted from net income
Discount on bonds payable (as amortized) is added to net income
Premium on bonds payable (as amortized) is deducted from net income
Indirect Method: Special Items
Cash flows from operating activities: Cash receipts (individually): Inflows $ XXX Cash payments to suppliers (separately): outflows ($ XXX) Net cash flow from operating activities $ XXX
Cash flows from investing activities: (List of individual inflows and outflows) $ XX Net cash flow from investing activities $ XXX
Cash flows from financing activities: (List of individual inflows and outflows) $ XX Net cash flow from financing activities $ XXX
Format of the Statement of Cash Flows: Direct Method
20
Comparative Balance SheetShiner Corporation
Assets Dec 31, 1996 Dec 31, 1995
Cash $37,000 $49,000
Accounts Receivable $26,000 $36,000
Prepaid Expenses $6,000 $0Land $70,000 $0Building $200,000 $0
Accumulated Depreciation $11,000 $189,000 $0
Equipment $68,000 $0
Accumulated Depreciation $10,000 $58,000 $0
Total Assets $386,000 $85,000
21
Liabilities and Stockholder Equity
Accounts Payable $40,000 $5,000
Bonds Payable $150,000 $0
Common Stock $60,000 $0
Retained Earnings $136,000 $20,000
Total Liabilities and Stockholder Equity $386,000 $85,000
22
Income StatementShiner Corporation
Revenue $492,000
Operating Expenses $269,000
Depreciation $21,000 $290,000
Income before Income Taxes $202,000
Income Tax Expense $68,000
Net Income $134,000
23
Statement of Cash FlowsCash Flow from Operating ActivitiesNet Income $134,000
Adjustments to reconcile net income to net cash
Accts Receivable decrease $10,000
Prepaid Expense increase ($6,000)
Accts Payable Increase $35,000
Depreciation $21,000
$60,000
Net cash provided from Operating Activities $194,000
Investing Activities
Land Purchase ($70,000)
Building Purchase ($200,000)
Equipment Purchase ($68,000) ($338,000)
Financing Activities
Dividend payment to shareholders
($18,000)
Issuance of Bonds Payable $150,000 $132,000
Net Decrease in Cash ($12,000)
Cash Jan 1, 1996 $49,000
Cash Dec 31, 1996 $37,000