The Cash Flow Statement by birdmandaddy

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									  The Cash Flow Statement


Lecture 3
This lecture is part of Chapter 1:
      The Basic Financial Statements
                Today’s Lecture

Understand the elements of the Cash Flow Statement




         ?                Where does it go?


Make a simple Cash Flow Statement with MS Excel
                       Cash Flow

                                                    Help!
                           ?
Where does it go?

                               ?               Holiday ..

 In daily life, we all know the experience .. Where did the
 money go? It’s good to know!
 In business it’s essential to know!
               Cash Flow Statement
The Cash Flow Statement is the third of the three basic
financial statements. It is closely related to matters
concerning the daily operation of a company.

The Cash Flow Statement shows where the money goes
(out-flows) and where it comes from (in-flows) during a
certain period of time.

It also shows the net in- or out-flow during that period of
time. This is an extremely important number in the
financial management of a company!
              Cash Flow Statement
One way to look at the difference between the three basic
financial statements.

While the Balance Sheet shows cash balances and the
Income Statement where the money comes from or goes
to, the Cash Flow Statement shows why cash increased or
deceased.
              Cash Flow Statement

In other words:

         +    Beginning Cash Balance
         -    Cash Out-Flows (Uses)
         +    Cash In-Flows (Sources)
         =    Ending Cash Balance
                Cash Flow Statement
The Cash Flow Statement is usually divided into three
sections:
   • Cash Flows from Operations
       These are the cash flows generated by the daily running of the
       business. E.g. the buying and selling of goods.
   • Cash Flows from Investments
       Usually, with investments one means here fixed assets like plant
       and equipment.
   • Cash Flows from Financing
       Loans play an important part in most businesses. Here, mainly, the
       cash flows related to the repayment of loans or the taking up of new
       loans are listed.
       This item could also e.g. contain the cash flows from issuing stock.
       A Simple Cash Flow Statement
 A   B C D E                      F                   G
2
3    Ever Profit International
4    Cash Flow Statement for the Year ended Dec 31, 1999
5
6    Cash Flows from Operations
7       Receipts
8           Interest received from Investment          200
9           Payments from Customers                  12000
10          Others                                     340                   Let’s first
11      Disbursements
12          To suppliers                             -4800                   clean this
13          To employees                             -5000
14          Others                                    -200
                                                                             up a bit
15              Net Cash Flow from Op. Activites      2540  =Sum(G7:G14)    …
16   Cash Flows from Investing Activities
17
18
        Purchase of Equipment
        Sale of Equipment
                                                     -6000
                                                      1000
                                                                             and then
19              Net Cash Flow from Inv. Activities   -5000  =SUM(G17:G18)   look at it
20   Cash Flows from Financing Activities
21      Taking up of a long term loan                12000                   in more
22
23
        Payment of Dividends to Share Holders
                Net Cash Flow from Fin. Activities
                                                      -500
                                                     11500  =Sum(G21:G22)
                                                                             detail …
24   Net change in Cash Balance                       9040  =G15+G19+G23
       A Simple Cash Flow Statement
3              Ever Profit International
4    Cash Flow Statement for the Year ended Dec 31, 1999                    Use the
5                                                                           Center and
6    Cash Flows from Operations
7       Receipts
                                                                            Merge
8          Interest received from Investment          200                   Button
9          Payments from Customers                  12000                   Change the
10         Others                                     340
                                                                            Font
11      Disbursements
12         To suppliers                             -4800
13         To employees                             -5000
                                                                            Underline
14         Others                                     -200                  before the
15             Net Cash Flow from Op. Activites      2540  =Sum(G7:G14)    subtotals
16   Cash Flows from Investing Activities
17      Purchase of Equipment                        -6000                  Make the
18      Sale of Equipment                             1000                  main items
19             Net Cash Flow from Inv. Activities   -5000  =SUM(G17:G18)   italic
20   Cash Flows from Financing Activities
21      Taking up of a long term loan               12000
22      Payment of Dividends to Share Holders         -500                  Make the
23             Net Cash Flow from Fin. Activities   11500  =Sum(G21:G22)   total bold
24   Net change in Cash Balance                      9040  =G15+G19+G23
                        Some Notes
  Many accountants compute the amounts for the Cash Flow
  Statement by using the Income Statement and the changes
  in the related Balance Sheet accounts.
  This is often called the T-account approach. Of course this
  only works if the relevant information is actually listed in
  the Income Statement and Balance sheet.

Let us have a look at the items in the cash flow statement one
by one.
 Elements of a Cash Flow Statement
Cash Flows from Operations
 Receipts
     Here the most important receipts from daily operations for the
     business are listed. It is important to realize that the choice of what
     to list and what not is dependent on the nature of the company.
 Disbursements
     Here the most important disbursements necessary for the daily
     operations are listed. Again, the choice of what to list and what not
     depends on the nature of the company.
 Elements of a Cash Flow Statement
Cash Flows from Investing Activities
 Purchase of Equipment
     Most businesses cannot operate without some kind of investment.
     In order to get (and keep) a company running, it needs to buy
     certain equipment like e.g. computers and tools. Usually, such
     items can be used for many years which is why they are not listed
     under Cash Flow from Operations but separately.
 Sale of Equipment
     Of course one can also sell equipment previously bought. E.g. when
     one wants to upgrade or when one no longer wants it. Think of
     Singapore Airlines always wanting to have a nice new fleet. What to
     do with those old planes? One option is to sell them.
 Elements of a Cash Flow Statement
Cash Flows from Financing Activities
 Long Term Loan
     Knowing when and where to borrow money is an important aspect
     of management. If you borrow at the wrong moment at the wrong
     place you might end up in trouble. (Think Asian Crisis). On the
     other hand, if you have a great idea and give up on it due to lack of
     funds you might loose a fantastic opportunity.
     Since cash inflows (or outflows) due to loans are not part of daily
     operations, they are listed separately here.
 Payment of Dividends
     Of course the idea of ‘investing’ in a company as a shareholder is
     to get more money back than one puts in. Some companies return a
     part of their profits to the shareholders as dividends as a kind of
     interest on their shares (note: this is usually a rather small amount).
  Elements of a Cash Flow Statement
Net Change in Cash Balance
The net change in cash balance is an important indicator
for how well the company will be able to continue doing
business.
If the net change is strongly negative and the company has
little or no cash left, it will almost certainly need new
loans. It is good to know that one needs to plan for that.
On the other hand if the cash flow is positive and there are
little debts, extra cash for new investments or for
dividends will be available.
           Generating the Statement
Now let us look at how we can actually obtain some of the
items from the Balance Sheet and the Income Statement.
Cash Flow from Operating Activities
Receipts
    Payments from     =     Sales - Change in Accounts
      Customers                      Receivable
Disbursements
     To Suppliers     =   Cost of Goods sold + Change in
                          Inventory – Change in Accounts
                              Payable (for Inventory)
            Key Points of the Day


The Cash Flow Statement provides important information
regarding the cash requirements of a company.

(Parts of) the Cash Flow Statement can be derived from the
Balance Sheet and the Income Statement by analyzing
changes.

								
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