Cash Flow Statement

1
Cash Flow Statement

• Create a Cash Statement and Evaluate Company
  Performance

2
Cash Flow Statement

• Statement of cash flows is prepared in order to
  explain a change in cash for a period of time.
• Net change in cash is the ending balance minus
  the beginning balance
• Two formats direct and indirect (differ only
  with respect to operating activities and method)
• Three types of activities involve cash
• Operating activities
• Financing activities
• Investing activities

3
Cash Flow Statement

• ? Cash Flow Statement is VERY Different than the
  Income Statement
• o CF is simply a measure of the inflows and
  outflows of cash
• o Separated into operating, investing and
  financing sections
• o How can you have positive income, but no cash?
  
• o How can a firm have a lot of cash but no income?

4
Cash Flow Statement gt Direct method (1)

• ? Subtracts the operating cash outflows from the
  operating cash inflows to determine net cash
  inflow/outflow
• o Inflows are the following
• ? Collections from customers
• ? Collections of interest
• ? Other operating receipts
• o Outflows are the following
• ? Payments to suppliers
• ? Payments to employees
• Payments of interest
• Other operating payments

5
Cash Flow Statement gt Direct method (2)

• ? Similar process for investing activities
• o Investing inflows
• ? Receipts from selling property equipment
• ? Collections from long-term notes receivable
• ? Receipts from selling investments
• Investing outflows
• ? Cash purchase of equipment
• ? Making payments on long-term payables
• ? Payments of purchases for investments
• ? Financing is how the firm gets money to run the
  business aside from operations
• o Inflows from Financing
• ? Owner investments
• ? Receipts from long-term notes payable
• o Outflows from Financing
• ? Owner withdrawals
• ? Payments on long-term loans
• For Direct Method these values come from the
  transaction sheet. These are ALL the
  transactions that effect the CASH column.

6
Cash Flow Statement gt Indirect method (1)

• Indirect Method (more realistic for large firms)
• Adjust the net income to compute the new cash
  flow from operating activitieslist net income
  and then make adjustments
• ? To add-back non-cash expenses such as
  depreciation that were included in the
  calculation of net income
• ? To include non-cash changes in current assets
  and current liabilities that affected cash flows
  from operating
• ? Income is converted from an accrual basis to a
  cash basis
• Accruals

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Cash Flow Statement gt Indirect method (2)

• For the Indirect Method
• Net income
• PLUS
• Depreciation expense
• Decrease in inventory
• Decrease in accounts receivable
• Decreases in current assets related to op.
• Increase in accounts payable
• Increase in salaries payable
• Increase in current liabilities related to op.
• Losses on sales of assets