“Statement of Cash Flows”

Presented by – Rajveer Singh

Irfan Ahmad
Pramod Kumar
Ratnesh Mishra
 Overview of the
Statement of Cash Flows
The statement of cash flows …
(a) explains the reasons for a
change in cash.
(b) classifies the reasons for the
change as an operating,
investing or financing activity.
(c) reconciles net income with
cash flow from operations.
 Defination of Cash Flow
Statement

Cash flow Statement (CFS) can be

defined as a “Statement which
summarizes sources of cash inflow
and uses of cash outflows of a firm
during a particular period of time (a
month or a year)”.
 Learning Objectives
1. To through light on specific sources of cash flow.
2. To assertain the specific uses.
3. To assertain the net change in Cash and Cash
Equivalent.
4. To Help in Short-term Planning.
5. Understand the types of transactions that result
in cash flows from operating, investing, and
financing activities.
Contd….
6. To analyse Financial Position.
7. To help in Divident Decision.
8. Distinguish between the direct and
indirect methods of reporting and
analyzing cash flows from operations.
9. Develop an ability to analyze the
statement of cash flows, including the
relation among cash flows from
operating , investing, and financing
activities for businesses in various stages
of their growth.
 Define the Three
Classifications of Cash Flows
1. Operations –
cash flows related to selling goods and
services; that is, the principle business of
the firm.
2. Investing –
cash flows related to the acquisition or
sale of noncurrent assets.
3. Financing –
long term and short term cash flows
related to liabilities and owners’ equity;
dividends are a financing cash outflow.
Example of
a
Statement
of Cash
Flows

Exhibit 4.1
Components of the Statement of Cash
Flows
Cash
Cashreceived
receivedfrom
from Cash
Cashpaid
paidfor
for cash
cashflow
flow
Operations sale
saleof
ofgoods
goods - operating
operatinggoods
goods = from
fromoperations
operations
and
andservices
services and
andservices
services
+-
Cash
Cashreceived
receivedfrom
from Cash
Cashpaid
paidfor
forac-
ac- cash
cashflow
flow
Investing sales
salesof
ofinvestments
investments - quisition
quisitionof
ofinvest-
invest- = from
frominvesting
investing
ments
ments

Cash
+-
Cash Cashpaid
paidfor
for
Cashreceived
receivedfrom
from dividends
dividendsand
and cash
cashflow
flow
Financing issue
issueof
ofdebt
debtoror - reacquisition
reacquisitionofof
= from
fromfinancing
financing
capital
capitalstock
stock debt
debtor
orcapital
capitalstock
stock
=
Net
Netchange
changeinincash
cash
for
forthe
theperiod
period
 Preparing the Statement of Cash
Flows
Firms could prepare the cash flow statement
directly from the cash account. Most,
however, find it more efficient to prepare
the cash flow statement from the balance
sheet and income statement.

(a)Direct method

(a)Indirect method.
 Define the Direct and Indirect
Methods
1.-The Direct Method -
of presentation calculates cash flow from
operations by subtracting cash disbursements to
supplies, employees, and others from cash
receipts from customers.

2.-The Indirect Method -

calculates cash flow from operations by adjusting
net income for noncash revenues and expenses.
• Most firms present their cash flows using the
indirect method.
 Changes in Specific Accounts
increase decrease
IfIfnoncash
noncashassets
assets IfIfnoncash
noncashassets
assets
Non- are
areincreased,
increased, are
aredecreased,
decreased,
cash then
thencashcashwas spent, then
wasspent, thenthey theyprovided
providedcashcash
Asset so
socash
cashisisananoutflow,
outflow, so
socash
cashisisananinflow,
inflow,
s sosonegative
negativesign.
sign. sosopositive
positivesign.
sign.
IfIfliab.
liab.or
orS.E.
S.E. IfIfliab.
liab.or
orS.E.
S.E.
Liabilities increased,
increased,then thencash
cash decreased,
decreased,then thencash
cash
and was
wasobtained,
obtained, was
wasspent,
spent,
Shareholders’ sosocash
cashisisananinflow,
inflow, so
socash
cashisisananoutflow,
outflow,
Equity so
sopositive
positivesign.
sign. sosonegative
negativesign.
sign.
 Comparison of Cash Flow to Net
Income
• Net income is an accrual based concept and
purports to show the long-term.
• Cash flows purport to show the short term.
• Consider the outlook for both short-term and long-
term and consider that each is either good or poor.
• A strong growing firm would show both good long-
term and good short-term outlooks.
• A failing firm would show both poor long-term and
poor short term outlooks.
 Utility,Importance &
Advantages

• Cash position.
• Useful in day to day Cash
management.
• Useful in Preparing Cash Budget.
• Helpful in Financial planning.
• Helpful in Financial Control.
 Conclusion

A company can use a cash flow statement to predict

future cash flow, which helps with matters in
budgeting. For investors, the cash flow reflects a
company's financial health: basically, the more cash
available for business operations, the better.
However, this is not a hard and fast rule. Sometimes
a negative cash flow results from a company's
growth strategy in the form of expanding its
operations.
By adjusting earnings, revenues, assets and
liabilities, the investor can get a very clear picture of
what some people consider the most important
aspect of a company: how much cash it generates
and, particularly, how much of that cash stems from
core operations
THANK YOU!!