Analysis of Cash Flow Statement for Bata Shoe Company

Bata Shoe Company is a worldwide known shoe manufacturer operating in Bangladesh. The companys asset and revenue show that the company has a growth pattern. It is generally expected that CFO will exceed Net Income for a certain year. From their statement, it can be seen that Net Cash Flow from Operations is less in 2010 than in 2009. However, net income has increased over 2009 to 2010, from 449.41 million BDT to 543.97 million BDT. From the cash flow statement, it can be seen that the cash from operating activities declined in the year 2010 of 362.50 million from 541.29 million. To understand why that happened, an analysis of income statement and balance sheet items are required. Inventory and account receivable account shows an increase over the time period. The deferred tax and creditors for expenses account have decreased from 2009 to 2010. It is seen that in 2009 balance for cash and cash equivalents was 352 million BDT whereas the same balance dropped to 172 million BDT in 2010. It could be assumed that the company might not be interested in keeping cash for business rather more interested in increasing net income through aggressive accounting methods. Administrative accounts have also reduced over the years. General charges, legal and other professional fees, insurance and commission accounts see a drop from 2009 to 2010. This reduced amount has significant impact on net income of the company. If the administrative expenses are lower than the earlier years and other accounts of income statement are growing, it could be assumed that the company is trying to increase net income by reducing the administrative expenses. It could be concluded that: Bata Shoe Company is attempting to show greater net income by delaying the recognition of expenses resulting in reduced net cash flow from operating activity in 2010 compared to that of 2009.

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 The company is following aggressive accounting methods to increase net income by reducing the cash for business operations. Administrative expenses are reported at reduced amounts (not paying much importance to them) to inflate the net income. Bata Shoe Company follows the direct method of cash flow statement reporting. As per the method, it captures only the inflows and outflows of the business. Cash flow from operating activities can be allotted to either investing or financing activities. The operating cash flow should cover the capital expenditure of the company. It could be concluded that the Bata Shoe Company is trying to inflate net income as much as possible and not focusing on cash generation for the business.

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