MA. 2.
3Analysis of Financial Statements
Preparation & Analysis of
Cash Flow Statements
Learning Objective
To know how Accounting Standard-3 is
mandatory for listed and to be listed
companies and entity with a turnover
exceeding Rs.50 crore (Old Provision)
Content of Cash Flow Statement
Accounting Standard-3 deals with cash
flow during the period from operating,
investing and financing activities
Cash and Cash Equivalents
Cash Cash
Equivalents Currency
Short-term,
Short-term,highly
highlyliquid
liquidinvestments.
investments.
Readily
Readilyconvertible
convertibleinto
intocash.
cash.
So
Sonear
nearmaturity
maturitythat
thatmarket
marketvalue
valueis
isunaffected
unaffectedby
byinterest
interestrate
ratechanges.
changes.
Why cash flow analysis?
Cash flow is not the same thing as
profit, at least, for two reasons:
First, profit, as measured by an accountant,
is based on accrual concept.
Second, for computing profit, expenditures
are arbitrarily divided into revenue and
capital expenditures.
Purpose of the Statement of
Cash Flows
Provides information about the cash receipts and
cash payments of a business entity during the
accounting period.
Helps investors with questions about the
company’s:
Ability to generate positive cash flows.
Ability to meet its obligations and to pay
dividends.
Need for external financing.
Investing and financing transactions for the
period.
Sources and Uses of Funds and
Cash Flows
Sources of funds or cash flows:
funds from operations
sale of fixed assets
issue of share capital
borrowings
Uses of funds are:
losses
purchase of fixed assets
repayment of borrowings
payment of dividends
Cash from Operations
Cash flow from operations
+ PAT (– loss)
+ Depreciation
+ Other non-cash expenses
– Non-cash incomes
+ Loss from the sale of fixed assets
– Gain from the sale of fixed assets
+ Decreases in net working capital
– Increases in net working capital
Cash Flow Analysis
Operating Activity:
Operating activities are the principal
revenue-producing activities that are
not investing or financing activities.
Enterprises should represent cash flow
from operating activities using either
direct method or indirect method.
Investing Activities:
Investing activities refer to acquisition and
disposal of long-term assets and other
investments which are not included in cash
equivalent.
Financing Activities:
Financing activities are those that result in
changes in the size and composition of
owners’ capital and borrowing of the
enterprises.
Ex: changes in share capital and loan fund.
Cash Flow from Different Activities
• Operating : Cash Receipts and Cash
Disbursements from day to day transactions.
These transactions are generally from the
Income Statement and affect Current Assets
and Current Liabilities
• Investing : Cash Receipts and Cash
Disbursements from the purchase and sale of
Long-term assets
• Financing : Cash Receipts and Cash
Disbursements from Long-term Debt and Equity
FORMAT FOR CASHFLOW STATEMENT
Cash Flow Statement for the year ended ……
A. Net Cash flow from operating activities xxx
B. Net Cash flow from investing activities xxx
C. Net cash flow from financing activities xxx
Total xxx
Add: opening balance of cash xxx
Closing balance of cash xxx
Net cash flow - operating
activities
Net profit/loss before tax xxx
Add/less: non-cash non operating
Expenses xxx
Add: increase in CL, decr. in CA xxx
Less: decr. in CL, incr. In CA xxx
Net cash flow from op. activities xxx
Net cash flow from investing
activities
Add : Sale of assets xxx
Less: Purchase of assets xxx
Add: Sale of investments xxx
Less: purchase of investments xxx
Add: Dividend received xxx
Add: interest received xxx
Net cash flow xxx
Net cash flow from financing
activities
Add: issue of shares xxx
Less: dividends paid xxx
Add: issue of Debentures xxx
Less: interest paid xxx
Less: Redemption of debentures xxx
Add: long term borrowings xxx
Less: Amortization xxx
Net cash flow xxx
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