Cash Flow Statement 2

CASH FLOW STATEMENT and its ANALYSIS

Cash flow statement
• A cash flow statement presents information about the cash flows associated with the company’s main operations and those associated with its investing and financing activities of the period • A cash flow statement functions in conjunction with both the income statement (performance dimension) and the balance sheet (financial position)
• IAS 7 Cash Flow Statements

Statement of Cash Flows
• Provides information about cash inflows and outflows during an accounting period
• Is developed from Balance Sheet and
Income Statement data

The Cash Flow Statement
The cash flow statement provides information about:
• Cash Receipts (cash inflows)
• Uses of Cash (cash outflows)
- During a Period of Time

Inflows and outflows are reported for:
• Operating activities
• Investing activities
• Financing activities

Importance of Cash Flow
• Accrual-based accounting requires reporting revenues when earned and expenses when incurred – not when cash is exchanged.
• Explains the reasons for a change in cash.
• Reconciles net operations. income

with

cash

flow

from

• Valuation models used in financial analysis are often based on projections of future cash flows.

Preparing Cash Flow Statement
Four parts of a statement of cash flows:
 Cash
 Operating Activities
 Investing Activities
 Financing Activities



Cash

 Cash includes Cash and Cash-equivalents
 Cash Equivalents

• Treasury bills maturing within 90 days or less. • Investment Funds
• Foreign Currency on hand
• Checking Account
• Free Savings Account



Operating Activities

• Cash flows related to selling goods and services; that is, the principle business of the firm.
• The cash effects of transactions and other events that enter into the determination of income

Examples of Operating Activities
• Cash received from customers through sale of goods or services performed;
• Cash payments to suppliers or employees
• Cash payments for taxes and other