CASH FLOW

Ms Rosmin Iqbal Hussain

BOptom (UKM), CMBA (UNIMAS)
The Statement of Cash Flows
One of the three basic objectives of financial
reporting is
assessing the amounts, timing, and
uncertainty of cash flows.
Purpose of the Statement
To provide relevant information about the cash
receipts and cash payments of an enterprise
during a period.
The statement provides answers to the following
questions:
1. Where did the cash come from?
2. What was the cash used for?
3. What was the change in the cash balance?
Need for Cash Flow Statement
To ensure:
That sufficient profits are made to
finance the business activities
Sufficient cash funds are available as
and when needed
Content and Format
Three different activities:
Operating,
Investing, Financing
Content and Format
Operating
Cash inflows
and outflows
from
operations.
Investing
Cash inflows
and outflows
from
non-current
assets.
Financing
Cash inflows
and outflows
from
non-current
liabilities and
equity.
The statements value is that it helps users evaluate
liquidity, solvency, and financial flexibility.
What does +ve / -ve value in each indicate?
Standard Layout of the Cash
Flow Statement
Preparation
Information obtained from several sources:
(1) comparative balance sheets,
(2) the current income statement, and
(3) selected transaction data (e.g bank acct)
Where from: Where to?
Statement of Cash Flow
Cash flow from Ct (acct receivables) 1070,000 O
Cash pd to supplier (acct payables)/
employees (expenses)
980,000 O
Tax paid 10,000 O
Purchase of equipment 8,000 I
Proceeds from notes payables 20,000 F
Dividends paid 5,000 F
Interest paid 10,000 F
Cash balance beginning of the year
(bank opening balance in the beginning
of the month)
63,000
Statement Of Cash Flow for the year ended 31 December 20X6
Cash Flow from Operating Activity
Cash from customer
Cash paid to supplier/employees
Tax paid
Cash Flow from operating activities
Cash Flow from Investing Activity
Purchase of equipment
Cash Flow from Financing Activity
Proceeds from notes payables
Dividends paid
Interest paid
Cash Flow from financing activities
Nett Increase in cash & cash equivalent
Cash & cash equivalents at beginning of the year
Cash & cash equivalents at end of the year
Bank balances and cash

1070,000
(980,00)
(10,000)
80,000

(8,000)

20,000
(5,000)
(10,000)
5,000
77,000
63,000

140,000
Review
In preparing a statement of cash flows, which of the
following transactions would be considered an investing
activity?
a. Sale of equipment at book value
b. Sale of merchandise (product) on credit
c. Declaration of a cash dividend
d. Issuance of bonds payable at a discount receivable
Usefulness of the
Statement of Cash Flows
High amount - company able to generate
sufficient cash to pay its bills.
Low amount - company may have to borrow or
issue equity securities to pay bills
Without cash, a company will not survive.
Cash flow from Operations:
Usefulness of the
Statement of Cash Flows
Ratio indicates whether the company can pay off its
current liabilities from its operations. A ratio near
1:1 is good.
Financial Liquidity
Net Cash Provided by
Operating Activities
Average Current Liabilities
Current Cash
Debt Coverage
Ratio
=
Usefulness of the
Statement of Cash Flows
The amount of discretionary cash flow a company has
& thus is able to use it for purchasing additional
investments, retiring its debt, purchasing treasury
stock, or simply adding to its liquidity
Free Cash Flow
Review
The current cash debt coverage ratio is often used to
assess
a. financial flexibility.
b. liquidity.
c. profitability.
d. solvency.