Cash Flow Statement PDF

ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Cash Flow Statement ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Learning Outcomes Appraise the purpose of developing cash flow statement in businesses. Analyse the different act...

ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Cash Flow Statement ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Learning Outcomes Appraise the purpose of developing cash flow statement in businesses. Analyse the different activities involved in the statement of cash flows. Recognize how changes in assets, liabilities and equity affects the statement of cash flows. Interpret the statement of cash flows for business ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll Based on Previous Lecture Which of the following is a key feature of common-size financial statements? a) All financial figures are expressed as percentages of a base figure b) The financial figures are compared with industry averages c) Only changes in financial ratios are analyzed d) It only considers non-monetary assets ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Basis for preparation of financial Statements Accrual Basis of Preparation Balance Sheet Income Statement Cash Basis Cash Flow Statement ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Lets understand with help of an example Let’s imagine you started a bakery business with $1,000. You spent $1,000 on the cakes and sold them for $5,000 on one month credit. Let’s determine your cash position in this scenario. Revenue(sales): $5,000 Profit(Revenue-Expenses): $4,000 Cash: ZERO! ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Cash Flow Statement Statement recording the Inflows and Outflows of cash and cash equivalents. Prepared to know the sources and applications of cash and cash equivalents. ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Three Activities in Cash Flow Statement ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll Décor furniture company has the following transactions in the month of Sept 2022. I. Sale of old chairs Rs. 50,000 II. Borrowing of long – term loan from bank Rs. 100,000 III. Raising of equity share capital Rs. 50,000 IV. Purchase of welding machine Rs. 5,000. The total cash inflows and outflows in the business respectively are: a) 200,000 and 150,000 b) 30,000 and 15,000 c) 200,000 and 5,000 d) 100,000 and 10,000 ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Operating Activities ‘Primary’ or ‘main’ activities of the business. ‘Principal revenue generating’ activities of the business. A company is in the business of Furniture making. The various operating activities of its’ business will be: Purchase of Raw Material (Wood) Incurrence of manufacturing expenses (Payment of wages to labour) Sale of furniture ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Inflows and Outflows – Operating Activities Outflo Inflows ws Cash Cash from payments to sales of goods suppliers Cash receipts Cash from payments to commission, employees royalties etc. Income Tax payments ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll Raymond India Ltd. is having the following transactions in the past quarter of 2022. I. Payment made to employees Rs. 200,000 II. Payment made to suppliers Rs. 50,000 III. Cash received from royalties Rs. 50,000 The total cash outflows from operating activities will be: a) 300,000 b) 200,000 c) 100,000 d) 250,000 ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Investing Activities Concerned with Purchase and Sale of long – term assets and investments. A company is in the business of Furniture making. The various investing activities of its’ business can be: Purchase of Machinery for converting wood into furniture Sale of Old typewriter Purchase of delivery vans for transporting furniture ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll A manufacturing company having the following transactions in the past quarter of 2021. I. Purchase of machinery Rs. 400,000 II. Sale of old typewriter Rs. 100,000 III. Cash received from sales of goods Rs. 200,000 The total cash inflows from investing activities will be: a) 400,000 b) 100,000 c) 500,000 d) 700,000 ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Financing Activities Relates to long – term funds or capital of the business. Activities that result in change in size and composition of owner’s capital. ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Inflows and Outflows – Financing Activities Outflo Inflows ws Issue of Dividend share paid capital Raising of Interest long term paid loan Raising of Repaymen debenture t of loan s ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll A manufacturing company having the following transactions in the past quarter of 2021. I. Raising of long-term loan Rs. 250,000 II. Dividend payment Rs. 150,000 III. Cash received from sales of machinery Rs. 200,000 The total cash inflows from financing activities will be: a) 250,000 b) 150,000 c) 450,000 d) 600,000 ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll D – Mart has made the purchases of a truck which will be used in transportation of grocery items to different places. This purchase of truck by D – Mart will be classified as: a) Investing activity b) Financing activity c) Operating activity d) None of the above ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Analysis of cash flow Cash Flows Cash Flows Cash Flows Explanation from from from Operating Investing Financing Activities Activities Activities Company is using: a) cash + + + generated from operations and b) from sale of assets and c) from financing ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Analysis of cash flows Cash Flows Cash Flows Cash Flows Explanation from from from Operating Investing Financing Activities Activities Activities Company is using cash generated from + - - operations to buy fixed assets and to pay the debts or to owners ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Analysis of cash flows Cash Flows Cash Flows Cash Flows Explanation from from from Operating Investing Financing Activities Activities Activities Company is using cash generated from + - + borrowings in order to expand (buy fixed assets). ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll A company is having cash generated from the operating activities for Rs. 100,000. The cash used in investing activities were Rs. 50,000 and cash generated from financing activities were Rs. 20,000. These figures in the cash flow statement signifies: a) Company is using cash generated from operations to raise the long- term loans and to sell the fixed assets. b) Company’s problems in generating the cash flow from operations are covered by sale of fixed assets and by raising of long-term loans. c) Company is using the cash generated from operations to purchase the fixed assets and raise long term loans. d) Company is financing operating cash flow shortages by purchase of fixed assets and payment of loans. ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Analysis of cash flows Cash Flows Cash Flows Cash Flows Explanation from from from Operating Investing Financing Activities Activities Activities Company is using cash generated from + + - operations and from sale of fixed assets and to pay the debts or to owners ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Analysis of cash flows Cash Flows Cash Flows Cash Flows Explanation from from from Operating Investing Financing Activities Activities Activities The operating cash flow problems of the - + + company are covered by sale of fixed assets and borrowings. ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll If the cash flows from operating activities of the company are positive, it signifies: a) The cash inflows from operating activities are more than cash outflows. b) The company can utilize the positive cash inflows (from operating activities) to buy fixed assets c) The company can utilize the positive cash inflows (from operating activities) to pay dividend d) All of the above ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Analysis of cash flows Cash Flows Cash Flows Cash Flows Explanation from from from Operating Investing Financing Activities Activities Activities a) The company is growing rapidly as it is - - + buying fixed assets. b) The operating cash flow problems are resolved by ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Analysis of cash flows Cash Flows Cash Flows Cash Flows Explanation from from from Operating Investing Financing Activities Activities Activities The company is financing operating cash - + - flow shortages and is making payments to its’ creditors via sale of fixed ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll A manufacturing company having the following transactions in the past quarter of 2021. I. Purchase of building Rs. 250,000 II. Sale of old small machinery Rs. 50,000 III. Repayment of bank loan Rs. 10,000 The total cash inflows from investing activities will be: a) 310,000 b) 200,000 c) 60,000 d) 50,000 ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Analysis of cash flows Cash Flows Cash Flows Cash Flows Explanation from from from Operating Investing Financing Activities Activities Activities The company is using cash reserves to - - - finance its’ operations and also to pay its’ creditors. ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Poll The company has raised a loan of Rs. 50,000 during the previous year. It will be classified in cash flow statement under: a) Operating activities b) Investing activities c) Financing activities d) All of the above ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Activity The following table presents information related to the three activities of the cash flow statement (in Rs. Crores) for the prominent competitors in the consumer foods sector. Using the below data of the cash flow position of the business: I. Review and build suitable arguments for the cash generated/or used in three activities of these three competitors. II. Analyse the position of cash flows with respect to each of the three competitors and identify which company is having better cash flows. III. Recommend the activities wherein improvement is required to improve the overall cash flow position of this business. Cash flows Flipkart Amazon India Nykaa Operating cash flows -3000 -3211 7500 Investing cash flows -2000 1900 -5471 Financing cash 4329 -200 -8062 flows ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I Placement Questions What are some key indicators you would look for in a cash flow statement to assess the financial health of a company? What are the implications of persistent negative cash flows for a company, and how should management respond? Explain how free cash flow is related to a company's profitability and investment decisions.