Name Div Roll No

Gufran Siddiqui A 53
Aabid Kalokhe a 20
Shehzad Khan A 30
Asif valsangkar a 61
Farhan Ansari a 04
Shoaib shaikh a 50
Zeeshan azmi a 06
 Provides information about cash inflows and
outflows during an accounting period

 Is developed from Balance Sheet and Income

Statement data

 Important as an analytical tool

 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 income with cash flow from
operations.
 Valuation models used in financial analysis are
often based on projections of future cash flows.
Four parts of a statement of cash flows:

 Cash

 Operating Activities

 Investing Activities

 Financing Activities
 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
 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 expenses
 Acquiring/disposing of securities that are not cash equivalents
 Cash flows related to the acquisition or sale of non-current assets.
 Lending money/collecting on loans
Examples of Investing Activities
 Cash received from sales of assets that are not held for the regular
trading purposes such as sale of building; marketable securities such as
trading and available for sale securities, and investments
 Cash payments to acquire property, plant, and equipment (PPE), other
tangible or intangible assets, and other long-term assets
 Cash received from sale of, and paid for purchases of derivative
instruments
 Loans extended to other companies and collection of such loans
 Borrowing from creditors/repaying the principal
 Obtaining resources from owners
 Providing owners with a return on investment
Examples of financing activities
 Cash received from issuing share capital
 Cash proceeds from issuing bonds, loans, notes, mortgages
and other short or long-term borrowings
 Cash payments to shareholders to redeem existing shares-
treasury stock
 Cash repayment of loans and other borrowings; and
 Cash payments to shareholders as dividends.
 Operating Activities

Investing Activities
Financing Activities

Total Inflows less Total Outflows =

Change in cash for the accounting period
 Cash received from Cash paid for
cash flow
Operations sale of goods - operating goods = from operations
and services and services

+ or -
Cash received from
Cash paid to purchase cash flow
Investing sales of investments - long-term investments
= from investing
and longterm assets

+ or -
Cash received from Cash paid for
dividends and to cash flow
Financing issue of debt or - repay debt or to buy
= from financing
capital stock
treasury stock
=
Net change in cash
cash inflows cash outflows for the period
Firms may use one of two methods
prescribed by the IASB-FASB:
Direct Method
Indirect Method

The two methods yield identical figures

for net cash flow from operating
activities because the underlying
accounting concepts are the same.
Direct Method Shows
 Cash collections from customers
 Interest and dividends collected
 Other operating cash receipts
 Cash paid to suppliers and employees
 Interest paid
 Taxes paid
 Other operating cash payments
 Cash Flow from Operating Activities : Direct Method

Cash Flow from Operating Activities Amount Amount

(Rs.) (Rs.)

Cash Receipts from :

Sales XXX
XXX
Commission & Fees
XXX
Interest Received
XXX
Cash Payment for :
Purchases XXX
XXX
Payments to and for employees
XXX
Operating Expenses XXX
Interest Payments XXX
Direct Taxes Paid XXX

XXX
Net Cash Flow from Operating Activities
Reconciliation of the accrual based and cash based
accounting
Indirect Method starts with Net Income and adjusts for
 Deferrals
 Accruals
 Non-cash items, such as depreciation and amortization
 Non-operating items, such as gains and losses on asset sales
 Cash Flow from Operating Activities : Indirect Method

Cash Flow from Operating Activities Amount Amount

(Rs.) (Rs.)
Net Profit before Tax xxx
Adjustment for :
Depreciation xxx
Loss on Sale of Fixed Assets
xxx
Loss on revaluation
xxx xxx
Operating Profit before Working Capital Changes
xxx
Adjustment* for :
Trade and other Receivables xxx
Inventories or Stocks
xxx xxx
Trade Payments or (Creditors and B/P)
xxx
Cash Generated from Operations
Interest Paid
xxx xxx
Taxes Paid xxx
Net Cash Flow from Operating Activities XXX
 First Step
Look at changes in balance sheet accounts from
beginning to end of accounting period

Next Step:
Transfer the account changes to the appropriate
area of a statement of cash flows
External Uses
 To assess the ability of a firm to manage cash flows
 To assess the ability of a firm to generate cash through
its operations
 To assess the company’s ability to meet its obligations
and its dividend policy
 To provide information about the effectiveness of the
firm to convert its revenues to cash
 To provide information to estimate or anticipate the
company’s need for additional financing
Internal uses
 Along side with cash budget Cash Flow Statement is
used:
 To assess liquidity
▪ Determine if short-term financing is necessary

 To determine dividend policy

▪ Decide to distribute; or increase or decrease

 To evaluate the investment and financing decisions

 Non-Cash Transactions are ignored.

 Not a Substitute for Income Statementt.

 Not a test of Total Financial Position.

 Historical in Nature.
Should, at a minimum cover the following
areas:

 Cash flow from operating activities

 Cash inflows

 Cash outflows
 Its an important analytical tool for creditors, investors
and other users of financial statement data.

 Firm’s ability to generate cash flows in the future

 Firm’s capacity to meet cash obligations

 Firm’s future external financing needs

 Firm’s success in productively managing investing

activities
 Firm’s effectiveness in implementing financing and
investing strategies
Generating cash from operations is the preferred
method for obtaining excess cash to finance:

 Capital expenditures and expansion

 Repayment of debt

 Payment of dividends
When analyzing the cash outflows, the
analyst should consider the necessity of
the outflow and how the outflow was
financed

Generally, it is best to finance short-term

assets with short-term debt and long-term
assets with long-term debt or issuance of
stock
 Operating Investing Financing Change
Activities Activities Activities in Cash
Airline $ 2,29 ( 1,210) 213 1,232
Computer (25) 118 1 94
Recreation 42 (26) (5) 11
Retailer 1,068 332 (53) 1,347
Semiconductor 14,823 (6,362) (9,544) (1,083)

*Data from SEC website, www.sec.gov