TOPIC V:

Cash Flow
Statement

 What

is Cash-Flow Statement ?
Explain operating cash-flow, investing
cash-flow and financing cash-flow
Where to go for more information
Links with other statements

Scope:
why cash changed (cash-flows)
where cash came from and where
cash was spent

Purposes:
predict future cash-flows
evaluate management decisions
ability to pay dividends and interest
relationship between profit and
cash-flows

 Operations
New

borrowings
New stock issues
Sale of property, plant, and equipment
Sale of other noncurrent assets

 Cash

dividends
Repayment of borrowings
Repurchase of stock
Purchase of property, plant, and equipment
Purchase of other noncurrent assets

 How

much cash was provided by the normal, ongoing

operations of the company?
In what other ways were significant amounts of cash
raised?
Is the company investing enough in new plant and
equipment to maintain or increase capacity and to
replace old facilities with more efficient ones?
Is the company reinvesting excess cash in productive
assets, or is it using the cash to retire stock?

INCOME STATEMENT

2008
Revenues..191,400
Operating expenses(202,400):
Depreciation...26,400
Fuel.....77,000
Salaries...44,000
Taxes & licenses,,..22,000
Repairs...30,800
Miscellaneous..........2,200
Income.(11,000)

2007
182,600
(146,300):
26,400
46,200
35,200
17,600
19,800
1,100
36,300

BALANCE SHEET

2008
Net fixed assets 198,000
Accounts receivable. 8,800
Cash. 22,000
Total of assets.228,800
Accounts payable..30,800
Accrued salaries..8,800
Other accruals.3,300
Long-term debt. 100,100
Total liabilities143,000
Capital of business85,800
Total liab. & capital 228,800

2007
224,400
26,400
4,400
255,200
22,000
5,500
1,100
129,800
158,400
96,800
255,200

The owner of the business doesnt understand

how the company can be $17,600 ahead of
last year in terms of cash on hand and yet
show an $ 11,000 loss for the year.

Operating activities:
= transactions associated with day-by-day activities,
Investing activities:
= transactions involving increasings and decreasings
of fixed assets
Financing activities:
= transactions involving borrowing of cash through
noncurrent instruments and the issuance of equity
securities (creditors and investors)

DIRECT METHOD
focused on flows of cash (payments and
proceeds), classified upon their nature
(operating, investing and financing cash-flows)

INDIRECT METHOD:
focused on adjustments to the net income
before taxes, to compute the cash-flows from
operating activities; investing & financing
cash-flows are similarly disclosed

OPERATING CASH-FLOWS:
operating receipts (+)
operating payments (-)
INVESTING CASH-FLOWS:
receipts from sale (+)
payments from purchaise(-)
FINANCING CASH-FLOWS:
Receipts from financing(+)
Payments for financing (-)
TOTAL CASH-FLOW OF THE YEAR

Major Classes of Cash Receipts and Payments -Direct Method

Net cash flow from operating activities:

Net income
Noncash expenses, revenues, and losses included
in income:
Depreciation
1
Deferred taxes
Increase in accounts receivable
Increase in inventories
2
Increase in accounts payable
Increase in taxes payable
Gain (loss) on sale of equipment
3
Cash flow from operating activities

$200
120
5
(87)
(47)
56
1
(20)
228

Impact of Product Life Cycle on Cash Flows

 Comparative

balance sheet- links

Current income statement- links
Additional information

Beginning Balance
Assets
=
Cash + OA =

Liabilities

+ Equity

Liabilities+ CC + NI - Div

Assets
=
Liabilities
+ Equity
Ending Balance
Cash +/-other stuff = NI

Net Income Versus Net Cash Provided by

Operating Activities

Cash Provided By Operations

Capital Expenditures
Dividends Paid

Free Cash Flow

Rather than using numbers from the income

statement for assessment purposes, we use
numbers from the statement of cash flows.

 Accrual-based

measures allows too much

management discretion.
One disadvantage to the cash-based
measures is no readily available published
industry averages for comparison.