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CASH FLOWSTATEMENT
Presented By :Jatin Mann
Ashima Dawar
Harshit Bansal
Shreya Gupta
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INTRODUCTION
Cash flow Statement is a statement showing inflows and
outflows of cash during a particular period
This statement assesses the ability for the enterprise togenerate cash and cash equivalents.
Predict future cash flows.
Evaluate management decisions.
Determine the ability to pay dividends to stockholdersand payments to creditors.
It also assesses the liquidity and solvency of the
enterprise.
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What is cash?
Cash in hand
Cash in the bank
Cash equivalents - highly liquid, short-term investments
that can be converted into cash with little delay
Money-market investments
Government Treasury bills
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Basic form of cash flow
statement Cash Flow From Operating Activities
Direct method or indirect method (direct
requires also a reconciliation of net
income to cash flow from operating
activities)
Cash Flow from investing activities
Cash Flow from financing activities
Total (positive or negative) cash flow is addedto beginning cash balance and should result in
ending cash balance
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Definitions
Cash comprises of cash in hand and demand deposits with
banks. Cash equivalents are short term, highly liquid investments
that are readily convertible into known amounts of cash and
which are subject to an insignificant risk of changes in value.
Cash flows are inflows and outflows of cash and cash
equivalents.
Operating activities are the principal revenue-producing
activities of the enterprise and other activities that are not
investing or financing activities.
Investing activities are the acquisition and disposal of
long-term assets and other investments not included in cash
equivalents.
Financing activities are activities that result in changes in the
size and composition of the owners capital (including preference
share
capital in the case of a company) and borrowings of the enterprise
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Objectives
1. To provide information about the cash inflows andcash outflows from operating, financing andinvesting activities of the firm.
2. To show the impact of the operating, financingand investing activities on cash resources.
3. To tell how much cash came in during the period,how much cash went out and what the net cashflow was during the period.
4. To explain the causes for changes in cashbalance.
5. To identify the financial needs and help inforecasting future cash flows.
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limitations
Not suitable for judging the liquidity
Possibility of window dressing
It ignores non-cash transactions
It ignores the accrual concept of accounting
No substitute for an income statement
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Categories Of Cash
Inflows/Outflows
Operating Activities Investing Activities
Financing Activities
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Operating Activities
Operating Activities are the principlerevenue generating activities of the
enterprise.
Operating activities create revenues,expenses, gains, and losses.
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Operating Activities
Cash Inflow Cash Sale
Cash receivedfrom debtors
Cash receivedfrom fees and
commission Royalty and other
revenues
Cash Outflow Cash purchase
Payment to
creditors Cash operating
expenses
Payment of wages
Income tax
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Investing Activities
Investing activities includes theacquisition and disposal of long term
assets and other investments not
included in cash equivalent. Investing activities increase and
decrease long-term assets.
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Investing Activities
Cash Inflow Sale of fixed assets
Sale of investments Interest received
Dividend received
Cash Outflow Purchase of fixed
assets
Purchase of
investment
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Financing Activities
Financing Activities are those activitiesthat result in change in the size and
composition of owners capital and
various borrowings of the enterprise. Financing activities obtain cash from
investors and creditors.
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Financing Activities
Cash Inflow Issue of shares
Issue of debentures
in cash Proceeds from long
term borrowings
Proceeds from short
term borrowings
Cash Outflow Cash repayment of
amount borrowed
Interest paid on loan Interest paid on
debentures
Dividend paid on
equity Dividend paid on
preference sharecapital
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Cash flow statement
format of indirect method
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Add : Decrease in Current Assets
Increase in Current Liabilities
Less : Increase in Current Assets
Decrease in Current LiabilitiesCash generated from operating activities
Income Tax paid
Cash flow before extraordinary items
(+) or (-) Extraordinary items
Net cash from operating activities
B. Cash flows from Investing Activities :
Purchase of fixed assets
Sale of fixed assets
Purchase of investments (long term)
Sale of investments (long term)
Interest received
Dividend received
Net cash from investing activities
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C. Cash flows from Financing Activities :
Proceeds from issue of share capital
Proceeds from long-term borrowings
Repayment of long-term borrowings
Interest paidDividend paid
Net cash from financing activities
Net Increase (or decrease) in cash and cash
equivalents(A+B+C)
Cash and cash equivalents at the beginning of the
period
Cash and cash equivalents at the end of the period
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EXAMPLE