DEPARTMENT OF MANAGEMENT
STUDIES
TOPIC: CASH FLOW STATEMENT
SUBJECT: ACCOUNTING FOR MANAGERS
GUIDED BY: SUBMITTED BY:
DR. B. D. MISHRA MANISH NAYAK
HEAD OF DEPT. AMARTYA TIWARI
DEPT. OF MANAGEMENT STUDIES SANA FATIMA
GGV, BILASPUR YASAVANT JAISWAL
MBA 1ST SEMESTER
CONTENT
S
• INTRODUCTION
• MEANING OF CASH FLOW
• DEFINITION
• NEEDS OF CASH FLOW STATEMENT
• SOURCES OF CASH FLOW STATEMENT
• FORMAT OF CASH FLOW STATEMENT
• CLASSIFICATION OF CASH FLOW
• APPLICATION OF CASH FLOW
• UTILITY OF CASH FLOW
• DIFFERENCE BETWEEN CASH FLOW & FUND FLOW STATEMENT
• COMPARISON BETWEEN CASH FLOW & FUND FLOW
• LIMITATION
• CONCLUSION
AMARTYA TIWARI-
• INTRODUCTION
• MEANING OF CASH FLOW
• DEFINITION
• NEEDS OF CASH FLOW STATEMENT
MANISH NAYAK-
• SOURCES OF CASH FLOW STATEMENT
• FORMAT OF CASH FLOW STATEMENT
• CLASSIFICATION OF CASH FLOW
SANA FATHIMA -
• APPLICATION OF CASH FLOW
• UTILITY OF CASH FLOW
• DIFFERENCE BETWEEN CASH FLOW & FUND FLOW STATEMENT
YASAVANT JAISWAL -
• COMPARISON BETWEEN CASH FLOW & FUND FLOW
• LIMITATION
• CONCLUSION
INTRODUCTION
•CASH PLAYS AN IMPORTANT ROLE IN THE OPERATION OF
ANY BUSINESS CONCERN.
•CASH IS BOTH THE BEGINNING AS WELL AS THE END OF
ANY BUSINESS ORGANIZATION.
•WHILE ANALYZING THE RESULTS OF ANY BUSINESS
CONCERN IT BECOMES USEFUL
•TO KNOW THAT WHAT WERE THE BALANCES OF CASH IN
THE BEGINNING AND AT THE END OF A PARTICULAR
PERIOD
MEANING OF CASH
FLOW
•CASH FLOW STATEMENT IS A STATEMENT THAT SHOWS INFLOWS AND
OUTFLOWS OF CASH IN ANY BUSINESS CONCERNS DURING A
PARTICULAR ACCOUNTING PERIOD. ‘
•CASH’ MEANS CASH AND CASH EQUIVALENTS, WHILE ‘FLOW’ MEANS
MOVEMENT OF CASH.
•CASH FLOW STATEMENT MAY BE DEFINED AS A SUMMARY OF
RECEIPTS AND PAYMENTS OF CASH WHICH RECONCILES THE OPENING
CASH BALANCE WITH THE CLOSING BALANCE OF A GIVEN PERIOD ON
THE BASIS OF INFORMATION OF SOURCES (INFLOW) AND APPLICATION
(OUTFLOW) OF CASH FROM THE ITEMS APPEARING IN THE BALANCE
SHEET AND PROFIT AND LOSS ACCOUNT OF AN ENTERPRISE.
DEFINATION OF CASH
FLOW
THE CASH FLOW STATEMENT (CFS), IS A FINANCIAL STATEMENT THAT SUMMARIZES
THE MOVEMENT OF CASH AND CASH EQUIVALENTS (CCE) THAT COME IN AND GO
OUT OF A COMPANY. THE CFS MEASURES HOW WELL A COMPANY MANAGES ITS
CASH POSITION, MEANING HOW WELL THE COMPANY GENERATES CASH TO PAY
ITS DEBT OBLIGATIONS AND FUND ITS OPERATING EXPENSES. AS ONE OF THE
THREE MAIN FINANCIAL STATEMENTS, THE CFS COMPLEMENTS THE BALANCE
SHEET AND THE INCOME STATEMENT. IN THIS ARTICLE, WE’LL SHOW YOU HOW THE
CFS IS STRUCTURED AND HOW YOU CAN USE IT WHEN ANALYZING A COMPANY.
- CHRIS B.
MURPHY
NEEDS OF CASH FLOW STATEMENT
A CASH FLOW STATEMENT IS USEFUL FOR SHORT-TERM
PLANNING.
A BUSINESS ENTERPRISE NEEDS SUFFICIENT CASH TO
MEET ITS VARIOUS OBLIGATIONS
IN THE NEAR FUTURE SUCH AS PAYMENTS FOR PURCHASE
OF FIXED ASSETS , PAYMENT OF DEBTS MATURING IN THE
NEAR FUTURE, EXPENSES OF THE BUSINESS, ETC.
A HISTORICAL ANALYSIS OF THE DIFFERENT SOURCES AND
APPLICATION OF CASH WILL ENABLE THE MANAGEMENT
TO MAKE RELIABLE CASH FLOW PROJECTIONS FOR THE
IMMEDIATE FUTURE.
IT MAY THEN PLAN OUT FOR INVESTMENT:
FINANCIAL TOOL FOR MANAGEMENT.
HELPS IN EFFICIENT CASH MANAGEMENT:
SOURCES OF CASH FLOW STATEMENT, FORMAT OF CASH FLOW STATEMENT , CLASSIFICATION OF CASH FLOW
SOURCES OF CASH FLOW STATEMENT
INTERNAL SOURCES EXTERNAL SOURCES
1. DEPRICIATION ISSUE OF NEW SHARES
2. AMORTISATION OF INTANGBILE ASSET RAISING TERM LOANS
3. LOSS ON SALE OF FIXED ASSET PURCHASE OF PLANT & MACHINARY ON
DEFEREED PAYMENTS
4. GAIN FROM SALE OF FIXED ASSET SHORT TERM BORROWING
5. CREATION OF RESERVES SALE OF FIXED ASSETS
FORMAT OF CASH FLOW
STATEMENT
AS PER AS-3 THE FORMAT OF CASH FLOW STATEMENT IS AS
FOLLOWS:
CLASSIFICATION OF CASH FLOW
STATEMENT
OPERATING ACTIVITIES: REFER TO PRINCIPAL REVENUE PRODUCING ACTIVITIES OF AN ENTERPRISE.
SOME EXAMPLES OF CASH FLOW FROM OPERATING ACTIVITIES ARE:
• CASH RECEIPTS FROM THE SALE OF GOODS AND/OR SERVICES RENDERED.
• CASH RECEIPTS FROM ROYALTIES, FEE, COMMISSION AND OTHER REVENUES.
• CASH PAYMENTS TO SUPPLIERS FOR GOODS AND SERVICES.
• CASH PAYMENTS TO AND ON BEHALF OF EMPLOYEES.
• CASH RECEIPTS AND CASH PAYER OF AN INSURANCE COMPANY FOR PREMIUMS AND CLAIMS, ANNUITIES AND
OTHER POLICY BENEFITS.
• CASH PAYMENTS OR REFUNDS OF INCOME TAXES UNLESS THEY CAN SPECIFICALLY BE IDENTIFIED WITH
FINANCING AND OTHER ACTIVITIES.
• CASH RECEIPTS AND PAYMENTS RELATING TO FUTURE CONTRACTS, OPTION CONTRACTS AND SWAP
CONTRACTS, WHEN THE CONTRACTS ARE HELD FOR DEALING OR TRADING PURPOSES.
CASH FLOW FROM INVESTING ACTIVITIES
INVESTING ACTIVITIES REFER TO ACQUISITION AND DISPOSAL LONG TERM ASSETS
AND OTHER INVESTMENTS NOT INCLUDED IN CASH EQUIVALENTS.
BELOW ARE A FEW EXAMPLES OF CASH FLOWS FROM INVESTING ACTIVITIES ALONG WITH WHETHER THE ITEMS
GENERATE NEGATIVE OR POSITIVE CASH FLOW.
POSITIVE CASH FLOW NEGATIVE CASH FLOW
Sale of fixed assets Purchase of fixed assets
Sale of investment securities Purchase of investments such as stocks or
securities
Collection of loans and insurance Lending money
proceeds
CASH FLOWS FROM FINANCING ACTIVITIES
ALL ACTIVITIES WHICH BRING CHANGES IN THE SIZE AND COMPOSITION OF OWNER’S EQUITY AS WELL AS
BORROWING OF THE ENTERPRISE ARE KNOWN AS FINANCING ACTIVITIES. THE FOLLOWING ARE THE EXAMPLES OF
CASH FLOWS FROM FINANCIAL ACTIVITIES:
(1) CASH PROCEEDS FROM THE ISSUE OF EQUITY OR PREFERENCE SHARES.
(2) CASH PROCEEDS FROM THE ISSUE OF DEBENTURES, BONDS OR OTHER SHORT-TERM OR LONG-TERM BORROWINGS,
(3) CASH REPAYMENTS OF AMOUNT BORROWED,
(4) CASH PAYMENTS TO REDEEM PREFERENCE SHARES OR DEBENTURES,
(5) PAYMENT OF DIVIDEND ON SHARES,
(6) PAYMENT OF INTEREST ON DEBENTURES/ LOANS.
APPLICATION, UTILITY OF CASH
FLOW
APPLICATIONS OF CASH FLOW
• PURCHASE OF FIXED ASSETS
• PAYMENT OF LONG-TERM LOANS
• DECREASE IN DEFERRED PAYMENT
LIABILITIES
• LOSS ON ACCOUNT OF OPERATION
• PAYMENT OF TAX
• PAYMENT OF DIVIDEND
• DECREASE IN UN SECURED LOANS,
DEPOSITS, ETC
UTILITY OF CASH FLOW
• HELPS IN EFFICIENT CASH MANAGEMENT
• HELPS IN INTERNAL FINANCIAL MANAGEMENT
• DISCLOSES THE MOVEMENTS OF CASH
• DISCLOSES SUCCESS OR FAILURE OF CASH PLANNING
• EVALUATE MANAGEMENT DECISIONS
• SHOW THE RELATIONSHIP OF NET INCOME TO CHANGE
IN THE BUSINESS CASH
• EFFICIENCY IN CASH MANAGEMENT
CASH FLOW:
CASH FLOW IS RECORDED ON A COMPANY'S CASH FLOW STATEMENT. THIS STATEMENT—ONE OF
THE MAIN STATEMENTS FOR A COMPANY—SHOWS THE INFLOW AND OUTFLOW OF ACTUAL CASH
(OR CASH-LIKE ASSETS) FROM ITS OPERATIONAL ACTIVITIES.
• CASH FLOWS FROM OPERATING ACTIVITIES: CASH GENERATED FROM THE GENERAL
OR CORE OPERATION OF THE BUSINESS WOULD BE LISTED IN THIS CATEGORY.
• CASH FLOWS FROM INVESTING ACTIVITIES: THIS SECTION WOULD COVER ANY CASH
FLOW SPENT ON INVESTMENTS LIKE NEW EQUIPMENT.
• CASH FLOWS FROM FINANCING ACTIVITIES: THIS CATEGORY INCLUDES ANY
TRANSACTIONS INVOLVING DEBTORS, SUCH AS PROCEEDS FROM NEW DEBTS OR DIVIDENDS
PAID TO INVESTORS.
FUND
FLOW
ON THE ACCOUNTING SIDE, THE FUND FLOW STATEMENT WAS REQUIRED BY GAAP BETWEEN 1971 AND 1987.
WHEN IT WAS REQUIRED, THE STATEMENT OF FUND FLOW WAS PRIMARILY USED BY ACCOUNTANTS TO
REPORT ANY CHANGE IN A COMPANY'S NET WORKING CAPITAL, OR THE DIFFERENCE BETWEEN ASSETS AND
LIABILITIES, DURING A SET PERIOD OF TIME. MUCH OF THIS INFORMATION IS NOW CAPTURED IN THE
STATEMENT OF CASH FLOW.
COMPARISON BETWEEN CASH FLOW &
FUND FLOW
CASH FLOW & FUND
FLOW
HERE IS A VIDEO IN WHICH WE CAN UNDERSTAND CASH FLOW
LIMITATIONS OF CASH FLOW
• MISLEADING INTER- INDUSTRY COMPARISON
• MISLEADING COMPARISON OVER A PERIOD OF TIME
• MISLEADING INTER-FIRM COMPARISON
• INFLUENCED BY CHANGES IN MANAGEMENT POLICIES
• CANNOT BE EQUATED WITH INCOME STATEMENT
• NOT A REPLACEMENT OF OTHER STATEMENTS
CONCLUSIO
N
THE CASH FLOW STATEMENT SHOWS THE DETAILS OF CHANGE
IN(INCREASE/DECREASE) OF THE CASH AND CASH EQUIVALENTS IN OPERATING
ACTIVITIES, INVESTING ACTIVITIES AND FINANCING ACTIVITIES AS WELL AS NET
CHANGE OF THE CASH AND CASH EQUIVALENTS IN THE SPECIAL TREATMENTS.
CASH FLOW STATEMENT GIVES US A GOOD VIEW OF THE LIQUIDITY OF A COMPANY.
IT TELLS US HOW MUCH CASH ACTUALLY WENT INTO & OUT OF THE COMPANY
DURING A SET PERIOD OF TIME.