CASH FLOW

STATEMENT
 Learning Objectives

To explain how the statement of cash flows

is prepared

To interpret the information presented in the

statement
Balance Sheet - Where
does business stand today

Income Statement – How

well business did this year

Cash Flow Statement –

From where did cash came and
where did it go
“Joan and Joe: A Tale of Woe”
Joe added up profits and went to see Joan,
Assured of obtaining a much-needed loan.
When Joe arrived, he announced with good cheer:
“My firm has had an outstanding year,
And now I need a loan from your bank.”
Eyeing the statements, Joan’s heart sank.
“Your profits are fine,” Joan said to Joe.
“but where, oh where, is your company’s cash flow?
I’m sorry to say: the answer is ‘no’.”
--L. Fraser
 Statement of Cash Flows
Why is it important???

“A positive net income on the income

statement is ultimately insignificant
unless a company can translate its
earnings into cash, and the only source
in financial statement data for learning
about the generation of cash from
operations is the statement of cash flows”
 Statement of Cash Flows

A summary of a firm’s payments

during a period of time.
This statement reports cash inflows
and outflows based on the firm’s
operating activities,
investing activities and
financing activities.
Sources and Applications of Cash

Sources Applications
(Inflows) (Outflows)
Profitable Operations (R-E=NI) Unprofitable Operations

Sale of long-term assets Purchase of long-term assets

Owners invest in business Owners withdraw from business

Long term borrowings Repayment of Long term

borrowings
 Sources and Applications of Cash
Sources Applications (Outflows)
(Inflows)
Profitable Operations Unprofitable Operations Operating Activities
(R-E=NI)
Sale of long-term assets Purchase of long-term assets
Investing Activities

Owners invest in business Owners withdraw from business

Financing
Long term borrowings Repayment of Long term borrowings Activities
• Does the Ending Balance of a Cash-
Flow Statement Always Equal the
Cash?
• Cash is king, and it should always balance.
 Meaning of Cash

For the purpose of preparation and presentation of cash flow

statement, Cash includes

(1) Cash in Hand

(2) Cash at Bank
(3) Marketable Securities
 Cash Flow From Operating Activities
• Operating Activities are principal revenue-producing
activities.
 Case 1
• Example : In case of a book publishing company, its
operating activities are printing and publication of books
and their sale.

• All cash receipts and cash payment for printing publication

and sales of books are to be considered as cash flow from
operating activities
 Cash Flow From Investing Activities
• Investing Activities are the acquisition and disposal of
long term assets and other investments not included in
the cash equivalents
 Case 2
• Example : If a book publishing company, invests its funds for
acquisition of fixed assets or shares of another company.

• Any cash inflows or outflows from these activities of the

company are to be treated as cash flows from investing
activities
 Cash Flow From Financing Activities
• Cash flow from financing (CFF) activities is a
category in a company’s cash flow statement
that accounts for external activities that allow a
firm to raise capital.
• In addition to raising capital, financing activities
also include repaying investors, adding or
changing loans, or issuing more stock
 Classifying balance sheet movements as
inflows or outflows of cash

Assets Equity/liabilities

Increase Outflow Inflow

Decrease Inflow Outflow

 Incoming cash flows
Cash + Other assets = Liabilities + Owners’equity

(1) + -

(2) + +

(3) + +
 Outgoing cash flows
Cash + Other assets = Liabilities + Owners’equity

(1) - +

(2) - -

(3) - -
• Mr. Ambani withdrew cash Rs. 1 crore from Reliance ltd. And
purchased an audi for his personal purpose. As per cash flow which
activity it is

• A] Investing activity
• B] Financing activity
• C] Inflow of cash
• D] None
• Debentures were issued to public for Rs. 1,00,000 and today your
business re-pay the same. What type of activity it is

• A] Investing
• B] Financing
• C] Operating
• D] None
• Your company wants to install a chemical plant in
Gurgaon which will constitute Rs. 15 lakh money. What
type of activity it is

• A] Investing
• B] Financing
• C] Operating
• D] None
• You purchased the shares of Tata sons
via mutual funds. What activity it is
• A] Investing
• B] Financing
• C] Operating
• D] None
CALCULATE CASH FLOW FROM
INVESTING ACTIVITIES

Sold Plant and machinery Rs 20,000

Purchased Land and building Rs 30,000
Purchased 20 Shares of XYZ Ltd for Rs 10,000
Proceeds from sale of equipment Rs 30,000
Repayment of loan Rs 20,000

Interest Paid Rs.5,000

Dividend Received Rs.2,500
CALCULATE CASH FLOW FROM
FINANCING ACTIVITIES
A. Cash Flow From Operating Activities Rs. Rs. Rs.
Net Profit for the period (Transferred to Balance Sheet)
Add : Adjustment for non-cash & non operating items charged
to P/L a/c
Depreciation
Interest/Dividend Paid
Transfer to general reserve
Provision for Taxation
Preliminary Expenses/Discount on issue of shares/debentures
Written off
Goodwill written off
Loss on sale of Fixed Assets and Investments

Less : Adjustment for non-cash & non operating items credited

to P/L a/c
Interest Earned
Dividend Earned
Profit on sale of Fixed Assets and Investments

Operating Profit before working capital changes

Add : Increase in current liabilities

Decrease in current assets
Less : Increase in current Assets Rs. Rs. Rs.
Decrease in current liabilities
Cash generated from operations

Less : Income Tax Paid

Net Cash flow from operating Activities

B. Cash Flow from Investing Activities

Proceeds from Sale of Fixed Assets including
investments
Less : Purchase of Fixed Assets including investments
Add : Interest Received
Dividend Received
Net Cash Flow From Investing Activities
C. Cash Flow from Financing Activities
Add Proceeds from issuance of Share Capital
Add Proceeds from Long-term Borrowings
Less : Repayment of Long term Borrowings
Less : Interest paid
Dividend Paid
Net Cash Flow From Financing Activities
Net increase in Cash and Cash Equivalents= (A+B+C)
Add : Cash and Cash Equivalents at the beginning of the period
Cash and Cash Equivalents at the end of the period
 THANK YOU

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