Financial statement analysis1 orignal
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The document discusses a cash flow statement presented by three students. It defines a cash flow statement as a summary of a firm's cash receipts and payments during a period of time. It explains that cash flows come from operating, investing and financing activities. Operating activities include cash from sales and cash paid for expenses. The document outlines the importance, uses and users of the cash flow statement.
Financial statement analysis1 orignal
- 1. FINANCIAL STATEMENT ANALYSIS Presentation Topic: Cash Flow Statement Presented by: Badar Munir 331 Kamran Bangash 308 Moin Ali Baig 328 1
- 2. CASH FLOW STATEMENT “A summary of a firm's cash receipts and cash payments during a period of time.” “Firm’s cash inflows and outflows during a period of time.” 2
- 3. CASH FLOW STATEMENT Cash inflows: The money coming into the business. Cash outflows: The money going out from the business. 3
- 4. CASH FLOW STATEMENT Cash Outflows Cash Inflows Business 4
- 5. IMPORTANCE OF CASH FLOW STATEMENT Internal personnel and external entities will use the statement of cash flows as an analytical tool and used for analysis of firm. A cash flow provides an investor insight into a company's credit worthiness and overall financial health. 5
- 6. USES OF CASH FLOW STATEMENT 1. It helps the newly formed companies to know their inflow and outflow of cash. 2. It helps the investors to judge whether the company is financially sound or not. 3. It helps the company to know whether it will be able to cover the payroll and other expenses. 4. It helps the lenders to know the company’s ability to repay. 5. These statements help to have an accurate analysis of the firm’s ability to meet its current liabilities. 6. A cash flow statement is helpful for planning and managing future financial commitments. 6
- 7. USERS OF CASH FLOW STATEMENT 1. Managers (Internal) 2. Potential lenders or creditors 3. Investors 4. Students 5. Govt. 7
- 8. CASH FLOW STATEMENT The cash flow statement is partitioned into three segments. 1. Operating activities 2. Investing activities 3. Financing activities 8
- 9. Cash Flow Statement Operating Investing Financing activities: activities: activities: 9
- 10. Cash Flows from Operating Activities Typical cash inflows Typical cash outflows What are some of the What are some of the typical cash inflows from typical cash outflows from operating activities?` operating activities? Sales of goods Merchandise and services purchases Interest Payments of revenue wages and other expenses Dividend 10 revenue Tax payments
- 11. Cash Flows from Investing Activities Typical cash inflows Typical cash outflows What are some of the typical What are some of the cash inflows from investing typical cash outflows activities? from investing activities? Sales of fixed assets Purchase of fixed assets Sale of long- term Purchase of investments long-term investments 11
- 12. Cash Flows from Financing Activities Typical cash inflows Typical cash outflows What are some of the What are some of the typical cash inflows from typical cash outflows from financing activities? financing activities? Issuing bonds Paying cash and long-term dividends notes payable Repaying debt Issuing Acquiring preferred and treasury stock 12 common stock
- 13. Reporting Cash Flows Increases in Cash Decreases in Cash Operating Operating (receipts from (payments for revenues) expenses) Investing Investing (receipts from sales of (payments for acquiring noncurrent assets) noncurrent assets) Financing Financing (receipts from issuing (payments for treasury stock, 13 equity and debt securities) dividends, and redemption of debt securities)
- 14. PREPARING A STATEMENT OF CASH FLOW There are two methods of preparing the statement of cash flows 1. Indirect method 2. Direct method The indirect method derives cash flows from accrual basis statements. The direct method determines cash flows directly for each source or use of cash. 14
- 15. The Statement of Cash Flows: Indirect Method Accrual Basis Statements Cash Flow Statement Income Statement Operating activities: items & Changes in Adjust net income for accruals Current Assets and and non-cash charges to get Current Liabilities cash flows Investing activities: Balance Sheet: Changes Inflows from sale of assets and In Non-Current Assets Outflows from purchases of assets Balance Sheet: Changes in Financing activities: Inflows and outflows Non-Current Liabilities from loan and equity and Equity transactions
- 16. Format of the Statement of Cash Flows: Indirect Method Cash flows from operating activities: Net Income $ XXX Adjustments (to arrive at cash flow from operations) $ XX (List of individual inflows and outflows) Net cash flow from operating activities $ XXX Cash flows from investing activities: (List of individual inflows and outflows)$ XX Net cash flow from investing activities $ XXX Cash flows from financing activities: (List of individual inflows and outflows)$ XX Net cash flow from financing activities $ XXX
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- 18. Indirect Method: Special Items Note the following adjustments to net income in deriving operating cash flow: Loss on sale of assets is added to net income Gain on sale of assets is deducted from net income Discount on bonds payable (as amortized) is added to net income Premium on bonds payable (as amortized) is deducted from net income
- 19. Format of the Statement of Cash Flows: Direct Method Cash flows from operating activities: Cash receipts (individually): Inflows $ XXX Cash payments to suppliers (separately): outflows ($ XXX) Net cash flow from operating activities $ XXX Cash flows from investing activities: (List of individual inflows and outflows)$ XX Net cash flow from investing activities $ XXX Cash flows from financing activities: (List of individual inflows and outflows)$ XX Net cash flow from financing activities $ XXX
- 20. Comparative Balance Sheet Shiner Corporation Assets Dec 31, 1996 Dec 31, 1995 Cash $37,000 $49,000 Accounts Receivable $26,000 $36,000 Prepaid Expenses $6,000 $0 Land $70,000 $0 Building $200,000 $0 Accumulated $11,000 $189,000 $0 Depreciation Equipment $68,000 $0 Accumulated $10,000 $58,000 $0 20 Depreciation Total Assets $386,000 $85,000
- 21. Liabilities and Stockholder Equity Accounts Payable $40,000 $5,000 Bonds Payable $150,000 $0 Common Stock $60,000 $0 Retained Earnings $136,000 $20,000 Total Liabilities and $386,000 $85,000 Stockholder Equity 21
- 22. Income Statement Shiner Corporation Revenue $492,000 Operating Expenses $269,000 Depreciation $21,000 $290,000 Income before Income Taxes $202,000 Income Tax Expense $68,000 22 Net Income $134,000
- 23. Statement of Cash Flows Cash Flow from Operating Activities Net Income $134,000 Adjustments to reconcile net income to net cash Accts Receivable decrease $10,000 Prepaid Expense increase ($6,000) Accts Payable Increase $35,000 Depreciation $21,000 $60,000 Net cash provided from Operating Activities $194,000 Investing Activities Land Purchase ($70,000) Building Purchase ($200,000) Equipment Purchase ($68,000) ($338,000) Financing Activities Dividend payment to shareholders ($18,000) Issuance of Bonds Payable $150,000 $132,000 Net Decrease in Cash ($12,000) 23 Cash Jan 1, 1996 $49,000 Cash Dec 31, 1996 $37,000