CASH FLOW STATEMENT PRESENTATION DOCUMENT
- 1. CASH FLOW STATEMENT A cash flow statement is a financial statement that provides aggregate data regarding all cash inflows that a company receives from its ongoing operations and external investment sources. It also includes all cash outflows that pay for business activities and investments during a given period. The cash flow statement is believed to be the most intuitive of all the financial statements because it follows the cash made by the business in three main ways: through operations, investment, and financing. The sum of these three segments is called net cash flow.
- 2. KEY TAKEAWAYS •A cash flow statement provides data regarding all cash inflows that a company receives from its ongoing operations and external investment sources. •The cash flow statement includes cash made by the business through operations, investment, and financing—the sum of which is called net cash flow. •The first section of the cash flow statement is cash flow from operations, which includes transactions from all operational business activities. •Cash flow from investment is the second section of the cash flow statement, and is the result of investment gains and losses. •Cash flow from financing is the final section, which provides an overview of cash used from debt and equity.
- 3. TYPES OF ACTIVITIES • OPERATING ACTIVITIES • INVESTING ACTIVITIES • FINANCING ACTIVITIES
- 4. TYPES OF ACTIVITIES 1. Cash Flows from Operating activities: • The first section of the cash flow statement covers cash flows from operating activities (CFO) and includes transactions from all operational business activities. The cash flows from operations section begins with net income, then reconciles all non-cash items to cash items involving operational activities. • For example, accounts receivable is a non-cash account. If accounts receivable go up during a period, it means sales are up, but no cash was received at the time of sale. The cash flow statement deducts receivables from net income because it is not cash. The cash flows from the operations section can also include accounts payable, depreciation, amortization, and numerous prepaid items booked as revenue or expenses, but with no associated cash flow.
- 5. 2.Cash Flows from Investing: • This is the second section of the cash flow statement. It looks at cash flows from investing (CFI) and is the result of investment gains and losses. This section also includes cash spent on property, plants, and equipment. This section is where analysts look to find changes in capital expenditures (CapEx). • When CapEx increases, it generally means there is a reduction in cash flow. But that’s not always a bad thing, as it may indicate that a company is making investment into its future operations. Companies with high CapEx tend to be those that are growing. • While positive cash flows within this section can be considered good, investors would prefer companies that generate cash flow from business operations—not through investing and financing activities. Companies can generate cash flow within this section by selling equipment or property.
- 6. 3. Cash Flows from Financing: • Cash flows from financing (CFF) is the last section of the cash flow statement. The section provides an overview of cash used in business financing. It measures cash flow between a company and its owners and its creditors, and its source is normally from debt or equity. These figures are generally reported annually on a company’s 10-K report to shareholders. • Analysts use the cash flows from financing section to determine how much money the company has paid out via dividends or share buybacks. It is also useful to help determine how a company raises cash for operational growth. Cash obtained or paid back from capital fundraising efforts, such as equity or debt is listed here, as are loans taken out or paid back. • When the cash flow from financing is a positive number, it means there is more money coming into the company than flowing out. When the number is negative, it may mean the company is paying off debt or is making dividend payments and/or stock buybacks.
- 8. Key Differences between fund flow statement and cash flow statement • The fund flow statement is the earlier version of the cash flow statement. The cash flow statement is more comprehensive and details the multiple cash flows of a company, rather than just focusing on working capital. • The cash flow statement is best used to understand the liquidity position of a firm whereas the fund flow statement is best suited for long-term financial planning, which is why it is an important tool for investors. • The fund flow statement is able to identify the sources of cash and their uses, and the cash flow statement starts with looking at the current level of cash and how it leads to the closing balance of cash. • Opening and closing balance of cash are not shown in fund flow statement while opening and closing balance of cash are shown in cash flow statement. • Fund flow statement is prepared on ‘accrual basis’ while cash floe statement is prepared on ‘cash basis.
- 9. The main objectives of a cash flow statement are to: • Provide information on the cash inflows and outflows of a company over a specified period of time, usually a quarter or year. • Show the company's ability to generate positive cash flow from operating, investing and financing activities. • Provide a basis for forecasting future cash flows. • Enable users to evaluate a company's liquidity and solvency. • Provide additional information to the income statement and balance sheet to help users assess a company's financial health.
- 10. The limitations of a cash flow statement include: • It only reports on cash transactions and not non-cash transactions, such as depreciation, which can be significant in some industries. • It may not provide an accurate picture of a company's financial health if there are significant differences between accrual accounting and cash transactions. • It can be difficult to compare cash flow statements between companies, especially if they use different accounting methods. • It can be affected by seasonal and one-time transactions, making it challenging to make accurate forecasts.
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