CASH FLOW

cash flow statement

is a financial statement that shows how

changes in balance sheet and income
accounts affect cash and cash
equivalents, and breaks the analysis
down to operating, investing, and
financing activities
 CASH FLOW

INFLOW OUTFLOW
CASH
FROM OPERATIONS CASH LOST

CASH FLOW CASH FLOW

CASH EQUIVALENT CASH EQUIVALENT

NET INCREASE IN
CASH FLOW
EXISTING CASH FLOW
POSITION
 Cash Flows

Cash Inflows Cash Outflows

Incremental Revenue Initial Investment
Cost Savings Working Capital Inv.
Allowed Tax Credits Repairs & Maint.
Salvage Value Inc. Man. & Op Costs
Working Cap Release Interest and Loan Pmt
ST & LT Loans Income Taxes
4
 For example, if you buy a new company
truck, the cash outlay affects your cash flow
(because money went out), but the truck will
be set up as a capital asset on the balance sheet
and therefore won't appear on the income
statement. It will start to hit the income
statement in small pieces when you depreciate
it
 MOTIVES OF PREPARING THE CASH
FLOW STATEMENT
 To identify the causes for the cash balance
changes between two different time periods
with the help of two different balance sheets.

 To enlist the factors of influence on the

reduction of cash balance.
UTILITY OF CASH FLOW STATEMENTS
 To identify the reasons for the reduction or
increase in the cash balances.
 It guides the management to take the capital
budgeting decisions.
 It helps the management to maintain an
appropriate level of cash resources.
 How much cash resources are to be raised
through the external sources ?
Classification of cash flow

Cash flow from operating activity

Cash flow from investing activity

Cash flow from financing activity

Operating activities
include the production, sales and delivery of
the company's product as well as collecting
payment from its customers. This could
include purchasing raw materials, building
inventory, advertising, and shipping the
product
 Operating Activities

• Sales revenue (inflow)

• Cost savings (inflow)
• Manufacturing expenses (outflow)
• Interest payments (outflow)
• Lease expenses (outflow)
• Income taxes (outflow)
Investing activities

Purchase of an asset (assets can

be land, building, equipment, marketable
securities, etc.)

Loans made to suppliers or customers

 Investing Activities

• Capital investment (outflow)

• Salvage value (inflow)
• Working capital (outflow)
• Working capital
recovery (inflow)
• Gains taxes (outflow)
Financing activities

include the inflow of cash from investors such

as banks and shareholders, as well as the
outflow of cash to shareholders as dividends as
the company generates income.
 Financing Activities

• Borrowed Amount (inflow)

• Principal repayments (outflow)

Advantages of Cash Flow Statement:
1. It helps the newly formed companies to know their inflow and
outflow of cash.

2. It helps the investors to judge whether the company is

financially sound or not.

3. It helps the lenders to know the company’s ability to repay.

4. These statements help to have an accurate analysis of the

firm’s ability to meet its current liabilities.

5. A cash flow statement summarizes the company’s cash

receipts and cash payments over a period of time.
Disadvantages of Cash Flow Statement:

1. By itself, it cannot provide a complete

analysis of the financial position of the firm.

2. It can be interpreted only when it is in

confirmation with other financial statements
and other analytical tools like ratio analysis.
CASH FLOW STATEMENT FUND FLOW STATEMENT

Only cash inflow and outflow are considered Increase or decrease in the working capital is
registered

Causes and changes of cash position Causes and changes of working capital position

Considers only most liquid assets pertaining to
cash resources; which fosters only for very
short span of planning
Considers in general that is current assets; the
duration of the liquidity of the current assets
are longer in gestation than the liquid assets:
which paves the way for the long span of
planning

Opening and closing balances of cash resources Increase or decrease in working capital is
are considered for the preparation considered but not the opening and closing
balance for preparation

The flow in the statement means real cash flow The flow in the statement need not be real cash
flow
 TATA MOTORS CASH FLOW
STATEMENT
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Net Profit Before Tax 1236.95 1528.88 1913.46 2028.92 1001.26

Net Cash From Operating Activities 1249.82 -221.03 2210.13 6174.50 1295.02

Net Cash (used in)/from

-956.57 -1.06 -2805.10 -5721.86 -10644.67
Investing Activities

Net Cash (used in)/from Financing Activities 940.67 -855.27 303.58 1132.46 8104.70

Net (decrease)/increase In Cash and Cash Equivalents 1233.92 -1077.36 -291.39 1585.10 -1244.95

Opening Cash & Cash Equivalents 771.12 2196.79 1118.15 806.21 2386.77

Closing Cash & Cash Equivalents 2005.04 1119.43 826.76 2391.31 1141.82
Statement of Cash Flows

Cash Flow from Operating Activities

Net Income XXX,XXX
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization XX,XXX
Changes in other accounts affecting operations:
(Increase)/decrease in accounts receivable X,XXX
(Increase)/decrease in inventories X,XXX
(Increase)/decrease in prepaid expenses X,XXX
Increase/(decrease) in accounts payable X,XXX
Increase/(decrease) in taxes payable X,XXX
Net cash provided by operating activities (XX,XXX )

Cash Flow from Investing Activities

Capital expenditures XXX,XXX
Proceeds from sales of equipment XX,XXX
Proceeds from sales of investments XX,XXX
Investments in subsidiary XXX,XXX
Net cash provided by investing activities (XX,XXX )

Cash Flow from Financing Activities

Payments of long-term debt XX,XXX
Proceeds from issuance of long-term debt XX,XXX
Proceeds from issuance of common stock XXX,XXX
Dividends paid XX,XXX
Purchase of treasury stock XX,XXX
Net cash provided by financing XX,XXX

Increase (Decrease) in Cash (XX,XXX)

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