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Presentation on Cash Flow

Presentation on Cash Flow. MONEY MATTERS CLUB. Why do we prepare Cash Flow. It supplements the information provided by Income statement and Balance sheet It reports all the cash inflows and outflows of the firm for a specific period. Measures the liquidity of a firm

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Presentation on Cash Flow

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  1. Presentation onCash Flow MONEY MATTERS CLUB

  2. Why do we prepare Cash Flow • It supplements the information provided by Income statement and Balance sheet • It reports all the cash inflows and outflows of the firm for a specific period. • Measures the liquidity of a firm • Ability of company to raise cash • Ability to service debts • Indian Accounting standards & IFRS-7 • US GAAP-95

  3. Classification of Cash Flows • Operating Activites- Measures the amount of cash generated or used by firm as a result of production and sales of good and services. • Investing Activities-Reports amount of cash used to acquire assets such as plant& equipment etc. These outlays are required to maintain firm’s current capacity and for future growth. • Financing Activities-Contains cash flow of firm’s capital structure (debt+equity) decisions, like proceeds from issue of shares, return to shareholders in terms of dividend, repayment of debt.

  4. Methods to prepare Cash Flow Statements • Direct Method-Direct inflows and outflows are captured. The cash from operations is a replica of cash book. • Indirect Method-Reconciliation of CFO from profit and loss account/ Net income. • CFF and CFI is same under both the methods

  5. Transactional AnalysisCash from Operating Activities

  6. Transactional AnalysisCash from Investing Activities

  7. Transactional AnalysisCash from Financing Activities

  8. How is CFO computed in Indirect Method Net Income +/-Non cash Expenses & Revenue(Depreciation) +/-Non Operating Items included in net income( gain/loss from sale of property) +/-Noncash changes in operating assets and liabilties/ Working capital changes = Cash from operations

  9. Account for changes in Net income

  10. Analysis of cash flow • A firm’s ability to generate cash flow from operations • Trends in cash flow components and cash consequences. • Management Decisions regarding critical areas like financing policy, dividend policy, and investment for growth.

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