Cashflow statement(1)12
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The cash flow statement summarizes the inflows and outflows of cash and cash equivalents over a period of time. It has three sections - operating, investing, and financing activities. The operating section deals with cash from core business operations. The investing section includes cash from the purchase and sale of long-term assets. The financing section includes cash from activities related to changes in a company's capital structure and borrowing arrangements.
Cashflow statement(1)12
- 2. MEANING • CASH i. Cash in hand ii. Demand Deposits in Banks iii. Cash Equivalents • Cash equivalents are short-term, highly liquid investments, readily convertible into cash and which are subject to insignificant risk of changes in values.
- 3. • Flow:flow means flow of cash from business to economy and economy to business. • Statement:statement is a performa prescribed by Charted Accountant Act,1948. Thus, cash flow statement is a statement of inflows(sources) and outflows(uses) ofcash and cash equivalents in an enterprise during a specified period of time.
- 4. Categories of Inflows And Outflows • The statement of cash flow shows three main categories of cash inflows and cash outflows, namely : operating, investing and financing activities. • Operating activities are the principal revenue generating activitiesof the enterprise. • Investing activities include the acquisition and disposal of longtermassets and other investments not included in cash equivalents. • Financing activities are activities that result in change in the size and composition of the owner’s capital (including Preference share capital in the case of a company) and borrowings of the enterprise.
- 5. Operating Activities • Cash Outflows: • Cash Outflows: • Cash from sales • Cash purchases • Cash received from • Payment to creditors Debtors • Cash operating expenses • Paymant of wages • Cash received from commision and • Income tax fees • royalty and other revenues
- 6. Investing Activities • Cash inflow: • Cash outflow: • Sale of fixed assets • Purchase of fixed assets • Sale of investments • Purchase of investments • Interests received • Dividend received
- 7. Financing Activities • Cash inflow: • Cash outflow : • Issue of shares • Cash repayments of amount • Issue of debuntures in cash borrowed • Proceeds of long term short term • Interest paid on loans/debentures borrowings • Dividends paid on equity and preference share capital
- 8. Cash flow Fund flow • Meaning of fund:means only cash • Fund means net working capital component ofcurrent assets. • Objective:is to know about the changes • To know about the changes occurred in occurred in cash position between two net working capital between two balance balance sheet dates. dates • Basis of preparation:increase in current • Increase in current liability and decrease liability or decrease in current asset in current asset results in a decrease in results in increase in cash or vice versa. net working capitaland vice versa • Utility:useful for short term analysis • Useful for lonterm analysis • Effect of transaction:effect of a • Effect of a transaction only on net transaction only on cash is considered working capital is considered • Cash balances:opening and closing • Opening and closing balances are shown balances are shown in cash flow in statement of changes in working statement capital
- 9. Limitations of cash flow statement Though it is true that cash flow statement is very useful now-a-days and serves many purposes. But it is necessary to take certain precautions while making use of this important tool. • It is very difficult to precisely define the term ‘cash’ • There are controversies over a number of items like cheques, stamps,postal orders etc. to be included in cash or not.
- 10. • As the present business moves from the cash basis to accrual basis, the prepaid and credit transactions might be represented an increase in working capital and it would be misleading to equate net income to cashflow because a number of non cash items would affect the net income.
- 11. Balance sheet liabilities 2005 2006 assets 2005 2006 (Rs. ‘000) (Rs. ‘000) (Rs.’000) (Rs.’000) Paid up 50 50 Gross fixed 1000 1125 capital assets Retained 350 415 Accrued (100) (175) earnings depriciation Long term 500 550 inventory 100 110 debts Notes 80 100 Accounts 50 60 payable recevables Accounts 80 90 cash 10 85 payable total 1060 1205 total 1060 1025
- 12. Income Statement (Rs.’000) • Sales 1200 • Cost of goods sold (800) • Gross profit 400 • Selling,general and administartion (150) • EBIT 250 • Int. exp (50) • EBT 200 • Taxes (100) • Net income 100
- 13. • Additional information (Rs.’000) • Dividend paid 35 • Additions to be retained 65 • Depreciation 75
- 14. THANK YOU!