Cash Flow Statement Shared 2024 PDF

Reading Annual Report Five-step approach: – Read the accounting policies. – Mark on the face of the Balance Sheet and Profit and Loss Account the important observations of Auditors’ report and notes to account. – Read carefully each item (along with its schedule) of...

Reading Annual Report Five-step approach: – Read the accounting policies. – Mark on the face of the Balance Sheet and Profit and Loss Account the important observations of Auditors’ report and notes to account. – Read carefully each item (along with its schedule) of Balance Sheet and Profit and Loss Account. – Make necessary adjustments – Proceed to use the (adjusted) numbers in the financial statements for Financial Statement Analysis. 1–1  BOD, Bankers, Auditors & Top Management Chairman’s Statement Director’s report Management Discussion & Analysis Contents of an Annual Report Corporate Governance report Shareholder’s information Auditor’s report Financial Statements – Balance Sheet – P & L A/c – Cash Flow Statement – Schedules & Notes to accounts – Consolidated Financial Statements 1–2 Cash Flow Statement Day 2  Rationale Profit alone is not sufficient. – accrual & matching concept – accounting assumptions  Cash Flow Statement A statement that presents the inflows and outflows of cash to and from an organization due to various transactions in a given accounting period. Helps assess the ability of an enterprise to generate cash & cash equivalents and to utilize the same. Also helps to assess the liquidity and solvency of the entity. AS 3 issued by the ICAI guides the preparation of cash flow statement in India. SEBI – Clause 32 of the listing agreement of stock exchanges  Basic Elements Cash flow from operating activities: – Principal revenue producing activities of the enterprise Cash flow from investing activities: – Acquisition and disposal of long term assets and investments (other than those considered in cash equivalents) Cash flow from financing activities: – Activities that result in change in size and composition of owners’ capital (equity) and borrowings of the enterprise  Cash Flow Statement Format Cash Flows from Operating Activities [A] Cash flows from Investing Activities [B] Cash Flows from Financing Activities [C] Net increase/(decrease) in cash and cash equivalents [A+B+C] [D] Opening balance of cash and cash equivalents [E] Closing balance of cash and cash equivalents F =[D+E]  Operating Activities It is the principle revenue generating activities of an entity Two ways of calculating it Direct method major classes of gross cash receipts and gross cash payments are disclosed -changes that cash transactions cause in revenue & expense accounts are analyzed. Indirect method The Profit and Loss Account is adjusted for the effects of transactions of non-cash and non-operating nature Also known as “Reconciliation to Net Income” Cash flow from Operating Activities: Indirect Method A. Start with Net Income / Profit before tax from P&L a/c B. Adjust for Non cash items: » Add Non cash expenses -Depreciation & other non cash amortizations, provisions for liabilities C. Adjust for Non operating items » Add Non operating expenses - Interest costs and other non operating expenses/losses » Deduct Non operating income » Deduct Non recurring income/gains » Deduct Actual cash tax paid D. Operating Profit before Working capital adjustment (Adjusting A B & C) E. Working capital adjustments Changes in current assets and current liabilities (other than cash and cash equivalents) Cash flow from operating activities (D +/- E) ACC = CFO ACC = CFI ACC = CFF INFOSYS INFOSYS = CFO INFOSYS = CFI INFOSYS = CFF 1–16 Asian Paints Nestle NTPC ltd. 1–20 1–21  Recap Proceeds from the sale of equipment used in the business – A/B/C or supplemental info The loss on sale of equipment as above Declaration and payment of dividends on company's stock An increase in the balance in retailer's merchandise Retirement of long term bonds payable The amortization of the cost of an intangible asset The exchange/conversion of long-term bonds into common stock