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CASH FLOW
ANALYSIS
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Laporan Arus Kas / Statement of Cash

Flow (SCF)
Fungsi SCF:
Mengukur / mengevaluasi kemampuan perusahaan dalam
memunculkan / meningkatkan arus kas di masa depan, membayar
dividen, dan memenuhi kewajibannya (mencakup liquidity, solvency, &
financial flexibility)
LIQUIDITY adalah ukuran sampai sejauh mana aset & liability dapat
segera diubah menjadi cash
SOLVENCY adalah ukuran kemampuan perusahaan untuk membayar
utangnya saat jatuh tempo
FINANCIAL FLEXIBILITY adalah ukuran kemampuan perusahaan untuk
menggunakan kasnya saat bereaksi dan menyesuaikan diri dengan
suatu peluang atau kendala suatu kegiatan
Menjelaskan perbedaan antara net income (accrual basis) dengan net
C/F from operating activities (cash basis) karena kas, selain merupakan
aset yang paling likuid, juga merupakan unsur awal dan akhir dari siklus
operasi perusahaan, dan net C/F adalah ukuran terakhir dari profitabilitas
Menjelaskan transaksi kas dan non kas cash pada aktivitas investasi dan
pembiayaan pada suatu periode.

Cash Flow (C/F) Statement

SCF helps address questions such as:
How much cash is generated from or used in
operations?
What expenditures are made with cash from
operations?
How are dividends paid when confronting an operating
loss?
What is the source of cash for debt payments?
How is the increase in investments financed?
What is the source of cash for new plant assets?
Why is cash lower when income increased?
What is the use of cash received from new financing?

Cash Flow (C/F) Statement

SCF reports cash receipts and payments by operating,
financing, and investing activities
Operating activities are the earning-related activities of
a company (revenues & expenses) Income statement
items
Cash inflows
(1) from sales of goods & service
(2) from returns on loans (interest) and on
equity securities (dividend)
Cash outflows
(1) to suppliers for inventory
(2) to employees for services
(3) to governments for taxes
(4) to lenders for interests
(5) to others for expenses
Format:
Indirect Method (Net income is adjusted for noncash income (expense) items and accruals to yield
cash flow from operations
Direct Method (Each income item is adjusted for its
related accruals)

Cash Flow (C/F) Statement

Investing activities are means of acquiring and
disposing of noncash assets (generally long term asset
items and assets expected to generate income)
Cash inflows from sale of PPE, debt & equity securities
of other entities, from collection of principal on loans to
other entities
Cash outflows to purchase PPE, debt or equities of other
entities, to make loans to other entities
Financing activities are means of contributing,
withdrawing, and servicing funds to support business
activities (generally long term liability & equity items)
Cash inflows from sale of equity securities (investments
or contributions by owners) & from borrowing or
issuance of debt (bonds and notes)
Cash outflows to shareholders as dividend (withdrawal
by owners) and to redeem (repaying) long term debt or
reacquire share capital

Special topics

Equity Method Investments

The investor records as income its percentage interest
in the income of the investee company and records
dividends received as a reduction of the investment
balance.
The portion of undistributed earnings is noncash
income and should be eliminated from the SCF.

Acquisitions of Companies with Stock

Such acquisitions are non-cash.
Changes in balance sheet accounts reflecting the
acquired company will not equal cash inflows (outflows)
reported in the SCF.

Postretirement Benefit Costs

The excess of net postretirement benefit expense over
cash benefits paid must be added to net income in
computing net cash flows from operations

Special topics

Securitization of Accounts Receivable

Companies account for the reduction in receivables
as an increase in cash flow from operations since
that relates to a current asset.
Analysts should question whether they represent
true improvement in operating performance or a
disguised borrowing.

The direct (or inflow-outflow) method reports

gross cash receipts and cash disbursements related to
operationsessentially adjusting each income
statement item from accrual to cash basis
Reports total amounts of cash flowing in and out of
a company from operating activities
Preferred by analysts and creditors
Implementation costs
When companies report using the direct method,
they must disclose a reconciliation of net income to
cash flows from operations (the indirect method) in

Limitations in Cash Flow Reporting

Practice does not require separate disclosure of cash
flows pertaining to either extraordinary items or
discontinued operations.
Removal of pre tax (rather than after-tax) gains or
losses on sale of plant or investments from operating
activities distorts analysis of both operating and
investing activities.
IFRS
GAAP
Differences between IFRS & GAAP
Interest paid
Operating or Financing
Operating
Interest received

Operating or Investing

Operating

Dividends paid

Operating or Financing

Financing

Dividend
received

Operating or Investing

Operating

Taxes paid

Operating unless
specific identification
with Financing or
Investing

Operating

Interpreting Cash Flows and Net

Income

An income statement records revenues when earned and expenses

when incurred.
It does not show the timing of cash inflows and outflows, nor the
effect of operations on liquidity and solvency.
This information is available in the SCF.

Cash flows from operations (CFO) is a broader view of operating

activities than is net income.
It is not a measure of profitability.
Note: A net measure, be it net income or cash flows from
operations, is of limited usefulness. The key is information
about components of these net measures.

Accounting accruals determining net income rely on estimates,

deferrals, allocations, and valuations.
Subjectivity
Note: CFO effectively serve as a check on net income, but not a
substitute for net income.

CFO exclude elements of revenues and expenses not currently

affecting cash.
Our analysis of operations and profitability should not proceed

Analysis of C/F
In evaluating sources and uses of cash, the analyst should focus on
questions like:
Are asset replacements financed from internal or external
funds?
What are the financing sources of expansion and business
acquisitions?
Is the company dependent on external financing?
What are the companys investing demands and opportunities?
What are the requirements and types of financing?
Are managerial policies (such as dividends) highly sensitive to
cash flows?
Inferences from analysis of cash flows include:
Where management committed its resources
Where it reduced investments
Where additional cash was derived from
Where claims against the company were reduced
Disposition of earnings and the investment of discretionary cash
flows
The size, composition, pattern, and stability of operating cash
flows

Analysis of C/F - Alternative Cash Flow

Measures
Net income plus depreciation and amortization
EBITDA (earnings before interest, taxes, depreciation,
amortization)
Issues with EBITDA
The using up of long-term depreciable assets is a real
expense that must not be ignored.
The add-back of depreciation expense does not
generate cash. It merely zeros out the noncash
expense from net income as discussed above. Cash is
provided by operating and financing activities, not by
depreciation.
Net income plus depreciation ignores changes in
working capital accounts that comprise the remainder
of net cash flows from operating activities. Yet changes
in working capital accounts often comprise a large
portion of cash flows from operating activities.

Analysis of C/F - Alternative Cash Flow

Measures
FREE CASH FLOW (FCF) =
cash flow from operating
(-) net capital expenditures required to maintain productive
capacity
(-) dividends on P/S and C/S (assuming a payout policy)
FREE CASH FLOW (FCF) =
net operating profit after tax (NOPAT)
(-) change (increase) in net operating asset (NOA)
Positive FCF reflects the amount available for business activities
after allowances for financing and investing requirements to
maintain productive capacity at current levels.
Growth and financial flexibility depend on adequate free cash
flow.
Recognize that the amount of capital expenditures needed to
maintain productive capacity is generally not disclosedinstead,
most use total capital expenditures, which is disclosed, but can
include
outlays for expansion of productive capacity.

Analysis of C/F - Alternative Cash Flow

Measures
CASH FLOW ADEQUACY RATIO (CFAR) =
Three-year sum of cash from operations
----------------------------------------------------------------------------------------------Three-year sum of expenditures, inventory additions, and
cash dividends
Measure of a companys ability to generate sufficient cash from
operations to cover capital expenditures, investments in
inventories, and cash dividends
CASH REINVESTMENT RATIO (CRIR) =
Operating cash flow Dividends
----------------------------------------------------------------------------Gross plant + Investment + Other assets + Working capital
Measure of the % of investment in assets representing
operating cash retained and reinvested in the company for both
replacing assets and growth in operations

Analysis of C/F - Company and Economic

Conditions
While both successful and unsuccessful companies can
experience problems with cash flows from operations,
the reasons are markedly different.
We must interpret changes in operating working capital
items in light of economic circumstances.
Inflationary conditions add to the financial burdens of
companies and challenges for analysis.

C/F as validators
The SCF is useful in identifying misleading or erroneous
operating results or expectations. SCF provides us with
important clues on:
Feasibility of financing capital expenditures.
Cash sources in financing expansion.
Dependence on external financing.
Future dividend policies.
Ability in meeting debt service requirements.
Financial flexibility to unanticipated
needs/opportunities.
Financial practices of management.
Quality of earnings.

CASH FLOW PATTERN

(Michael T. Dugan, Benton E. Gup, and William D. Samson, Teaching the Statement
of Cash Flows. Journal of Accounting Education, Vol. 9, 1991, p. 26)

C/F
OPER
ATING
+

C/F
C/F
GENERAL EXPLANATION
INVE FINAN
S-CING
TING
+
+
Company is using cash generated
from operations and from sale of
assets and from financing to build
up pile of cash very liquid
company possibly looking for
acquisition
Company is using cash flow
generated from operations to buy
fixed assets and to pay down debt
or pay owners

CASH FLOW PATTERN

(lanjutan)
C/F
OPER
ATING
+

C/F
INVE
STING
+

C/F
GENERAL EXPLANATION
FINA
NCING
Company is using cash from
operations and from sale of fixed
assets to pay down debt or pay
owners
+
Company is using cash from
operations and from borrowing (or
from owner investment) to expand
+
Companys operating cash flow
problems are covered by sale of
fixed assets and by borrowing or by
shareholders contributions

CASH FLOW PATTERN

(lanjutan)
C/F
C/F
C/F
GENERAL EXPLANATION
OPERA- INVES- FINA
TING
TING
NCING
+
Company is growing rapidly but
has shortfalls in cash flow from
operations and from purchase of
fixed assets financed by long term
debt or new investment
+
Company is financing operating
cash flow shortages and payments
to creditors and/or stockholders
via sale of fixed assets
Company is using cash reserves to
finance operation shortfall and pay
long term creditors and/or
investors

REFERENSI:
Kieso, Weigandt, and Warfield, Intermediate Accounting,
IFRS edition, volume 1, edisi 11, John Wiley and Sons
Inc. USA, 2011
Stice, Stice, and Skousen, Intermediate Accounting, edisi
17, South Western USA, 2010
Subramanyam, K. R. and John J. Wild, Financial Statement
Analysis, edisi 10, Mc.Graw Hill Irwin, 2009
Titman, Keown, and Martin, Financial Management,
Principles and Application, New International Edition
(edisi 12), Pearson, 2014