Cash Flow Statement

Presentation By:
Ahmed Muhammad Masood Niazi straight from
Mianwali
Saqib Tariq CHAUDHRY from Muniawala
Saad Javed Satti from Kotli Sattiyan
Mirza Umer Baig from Jeddah`
Mian Haider Ali Shah from AKORA khattak
Ayaz Tariq from MK

Statement of Cash Flow

Provides information about cash inflows and outflows during
an accounting period.
Focuses on Cash

Three sections to the statement of cash Flows:

1. Cash flow from Operating Activities
2. Cash flow from Investing Activities
3. Cash flow from Financing Activities

Statement of Cash Flow

While developing cash flow statement we need information from
balance sheet and income statement
All items are classified as either cash inflows or cash outflows
If an item represents a cash INFLOW
you ADD that item
If an item represents a cash OUTFLOW
you SUBTRACT that item

Statement of Cash Flow

Remember: Cash is on the left hand side of the Balance Sheet
Assets = Liabilities + Equity
Most classifications (In/outflow) are easy
An increase in gross fixed assets

An increase of long-term debt

Cash inflow =Decrease in Assets or Increase in Liabilities or equity

Cash outflow =Increase in Assets or Decrease in Liabilities or equity

Methods of Preparing Cash

Flow Statement
There are two methods by which we can prepare
cash flow statement:
Direct Method
Indirect Method

Direct Method:
very simple and result is more easily understood
In this method you are analyzing or evaluating your
cash and bank accounts to identify cash flow
during the period.

Indirect Method:
frequently used and most common method.
less expensive to use.
In this method you start with net income per the
income statement, reverse out entries to income
and expense accounts that do not involve a cash
movement

Indirect vs Direct
The main difference between the direct method
and the indirect method is involvement of
the cash flows from operating activities.
Under the direct method, the cash flows from
operating activities will include the amounts for lines
such as cash from customers and cash paid to
suppliers.
In contrast, the indirect method will show net
income followed by the adjustments needed to
convert the total net income to the cash amount
from operating activities.

CF from Operating Activities

Start with the net profit (income) and modify until you get the
net cash flow
Net income from Income Statement (starting point)
+ Depreciation
Changes in Current Assets (Accounts receivable, Inventories)
changes in Current Liabilities (Accounts payable, Accruals)
= Net cash flow from operating activities

As Depreciation is non cash expense and we had subtracted it from the

income statement so we will add it back in cash flow statement.

Example
Net Profit
Add
Depreciation
Decrease in a/c receivables
Less
Decrease in a/c payables
Loss on sale of asset
Cash flow from operations

50000
8000
5000
(2000)
(1000)
60000

Operating cash flows include:

Receipts from the sale of goods or services
Receipts for the sale of loans, debt or equity
instruments in a trading portfolio
Interest received on loans
Payments to suppliers for goods and services.
Payments to employees or on behalf of employees
Interest payments
Buying Merchandise

Items which are added back to [or subtracted from, as

appropriate] the net income are:
Depreciation (loss of tangible asset value over time)
Deferred tax
Amortization (loss of intangible asset value over time)
Any gains or losses associated with the sale of a noncurrent asset, because associated cash flows do not
belong in the operating section.(unrealized gains/losses
are also added back from the income statement)
Dividends received
Revenue received from certain investing activities

CF from Investing
Activities
Buying or selling productive long-lived assets such as plants and
equipment

Zero (starting point)

Changes in Gross Fixed Assets
= Net cash flow from investing activities

Example
Cash flow from operations

60000

Cash flow from investing activities

Cash from sale of Mkt. Securities
Cash advanced to borrowers
Cash proceeds from sale of asset

5000
(8000)
13000

Cash flow from investing activities

70000

Investing activities include:

Purchase or Sale of an asset (assets can be land,
building, equipment, marketable securities, etc.)
Loans made to suppliers or received from customers

CF from Investing
Activities
While preparing CF from Investing Activities we are looking
for changes in Gross Fixed Assets, not Net Fixed Assets!
What if Gross Fixed Assets are not reported in balance sheet?
Then we will first Calculate Dep. Then find out Gross fixed Assets
Depreciation (on the income statement) =
Change in Accumulated Depreciation (on the balance sheet)
Change in Gross Fixed Assets =
+ Change in Net Fixed Assets
+ Depreciation (on the income statement)

CF from Financing
Activities
Financing Activities
This includes transactions related:
New loans (long-term, short-term debt)/Repayment of principal
Sale (issue) or repurchase of stock and Payment of dividends.
Zero (starting point)

Changes in Notes Payable, Current Portion of LT Debt, Long Term

Debt, Common Stock

Dividend Payout (= Net Income Change in Retained Earnings)

Net cash flow from financing activities

Example
Cash flow from investing activities

70000

Cash flow from financing activities

Proceeds from sale of shares
Dividend paid
Cash proceeds from N/P
Net Cash flow
Op cash
Closing cash

8000
(1000)
12000
89000
6000
95000

Statement of Cash flows:

Useful Relation
Net cash flow from Operating Activities
+ Net cash flow from Investing Activities

+ Net cash flow from Financing Activities

________________________________
= CHANGE in the cash account (balance sheet)