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Cash Flows

The document discusses cash flow statements and their importance for businesses. It explains the three types of cash flows - operating, investing, and financing activities. It provides examples of direct and indirect cash flow statement formats and how to interpret the information from each section of the statement.

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Krutika Date
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45 views19 pages

Cash Flows

The document discusses cash flow statements and their importance for businesses. It explains the three types of cash flows - operating, investing, and financing activities. It provides examples of direct and indirect cash flow statement formats and how to interpret the information from each section of the statement.

Uploaded by

Krutika Date
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Accounting: Financial, Costs, and

Management
CASH FLOW STATEMENT
SIMSREE
14th Nov.’23
Cash is King
Growing Profits may not lead to high cash
•

balance
Net Income is important but cash flow is critical
•

Business success depends on positive cash flows


•

Activities like expansion, replacement of worn


•

assets, investments in new projects etc. is


possible only if there is cash flows
Questions that cash flow
statements answer
Will the company have enough cash to pay its
•

creditors
How much cash is locked up in inventory and
•

debtors and is that prudent


What are the company’s investments, will they
•

increase productivity
Is enough cash generated internally and how
•

much external sources are used…….


Classification of cash flows
Cash Flows from:
Operating Activities
•

Investing Activities and


•

Financing Activities
•
Cash Flow Statements
The Cash Flow Statements are prepared in Direct
•

Method or Indirect Method.


In Direct Method, operating activities cash flows
•

include actual in flow and outflow of cash due to


revenue earning activities, investment activities
include purchase and sale of long term assets,
financing activities include cash inflows and
outflows due to changes in sources of long term
funds and costs associated with them
Direct & Indirect Method
For Investing and Financing Activities, only
•

Direct Method is used


For Operating Activity either Direct or Indirect
•

Method is used
Cash generated in any activity can be negative
•

but cash balance can never be negative


The cash generated from all the three activities
•

is the difference between opening cash balance


and closing cash balance
Example of Format of Statement
Opening Cash Balance
• 5000
ADD:
•

Cash generated from


•

1. Operating activities 6000


•

2. Investing activities -4000


•

3. Financing activities 1000


• 9000
Closing Cash Balance
• 14000
Example of Cash Flow Statement
Cash generated from
•

1. Operating activities
• 4000
2. Investing activities
• -2000
3. Financing activities
• -1000
Increase in cash balance
• 1000
Opening cash balance
• 4000
Closing cash balance
• 5000
Operating Activities

Operating activities cash flows are:


•

Cash flows from core activity


•

Revenues and expenses


•

Cash received from Customers, cash paid to


•

suppliers, cash received on sales, cash paid for


purchases, cash paid for salaries and office
expenditures and so on
Operating Activities
Operating activities are the main revenue
•

generating activities
They include the activities due to the core
•

business of the organization other than investing


and financing activities
Investing Activities
• Cash Flows from sale and purchase of assets
• Cash Flows from Investing Activities are:
• In the direct method, cash flows due to sale of assets
like machinery, building etc. and purchase of
machinery, furniture etc are considered
• In Indirect method, Balance Sheet can tell the cash
outflow due to new purchases and Income statement
can tell cash position due to sale of assets by
reconciling the loss/profit on sale with opening figures
of the said assets in Balance Sheet
Investing Activities
Investing Activities are those that result in
•

purchase and sale of long term assets


They do not include increase or decrease in
•

current assets
Financing Activities
Cash Flows from financing activities are:
•

Cash Flows from issue of shares, debentures,


•

receiving loans, repayment of loans, payment of


dividends and interest
Financing Activities
Financing Activities impact the Capital structure
•

of an organization
It reflects to what extent an organization is
•

leveraged
Interpretation of Cash Flow
Statements
Cash Flows from
•

1. Operating Activities reflect the Income ratios


•

2. Investing Activities reflect the Growth and


•

Expansion strategies
3. Financing Activities reflect the policy of raising
•

capital and cost of capital


Tata Steel Cash Flow Statements by
Indirect Method
Indian Accounting Standard (Ind
AS) 7
• Cash flows from interest and dividends received
and paid shall each be disclosed separately. Cash
flows arising from interest paid and interest and
dividends received in the case of a financial
institution should be classified as cash flows arising
from operating activities. In the case of other
entities, cash flows arising from interest paid
should be classified as cash flows from financing
activities while interest and dividends received
should be classified as cash flows from investing
activities. Dividends paid should be classified as
cash flows from financing activities.
IND AS 7
• Cash flows arising from taxes on income shall be
separately disclosed and shall be classified as cash
flows from operating activities unless they can be
specifically identified with financing and investing
activities.
• The aggregate cash flows arising from obtaining or
losing control of subsidiaries or other businesses
shall be presented separately and classified as
investing activities.
•CA Dr. Sangeeta Pandit
•Mob: 9029908700
•Email: sangeetaspandit@gmail.com
•sangeeta@pdkunte.com

CA Dr.Sangeeta Pandit

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