Chapter 1 ; Introduction -Cash flow analysis introduction- Purpose -Meaning - Definitions ( 3 or 4) -Advantages -Disadvantages -Profoma - as table -Explanation on each

heading under the profoma e.g.: operating expenses; non-operating expenses ; cash from investing activities..etc. -Scope of the study -Objective of the study - limitations of the study -Research methodology - research design (explain) -Primary data(explain) -secondary data(explain) - Chapter scheme Chapter 1 -Introduction Chapter 2 -Company profile Chapter 3 Data analysis and interpretation Chapter 4 Findings , suggestions and conclusion of the study Annexure: Bibliography

CHAPTER 2 -Company profile introduction, founder , all information about the company till date. -Company highlights. -Companys cash flow statement Every item in the cash flow statement should be narrated in words as individual paragraph. (E.g.; non operating expenses : Generally how many and what items are there ? ,whether it was increasing or decreasing ? etc..) CHAPTER 3 Data analysis and interpretation- how many years data is analyzed , intro, importance of analysis Tools used for data analysis:
Cash Flow Statement as at 31st March, 2012 CASH FLOW FROM OPERATING ACTIVITIES 2011-12 2010-11 (` 000) (` 000) INFLOW : Premium including Service Tax 52809987 41675147 Bank Guarantee/Deposit Premium Receipts 18775882 14413297 Sundry Debtors Recovery 593129 149431 Misc Receipts (Transfer, Duplicate, Sale of old items, 137996 40619 Endorsement fees etc.)

Cash recovery on loans & advances including interest (excepting HB Loan) 190453 414985 Other Cash collection, if any 20079255 57724632 Total Inflow 92586702 114418111 OUTFLOW: Claims paid 30101854 19311877 Commission & Brokerage paid including S.Tax 2755559 3228310 Mgt. Expenses & Advances for expenses 4528388 3226135 Refund/ Excess premium payments 6935233 598450 Payment of Salary and deductions (Professional Tax, Income Tax etc.) 2238546 2941123 Loans and advances paid (except HBL) 369235 701506 Payment of Terminal dues 436199 344235 Other payments, if any 35789773 79152629 Total Outflow 83154787 109504265 (A) NET CASH FLOW FROM OPERATING ACTIVITIES 9431915 4913846
Registration no. 58 dated 16th March, 2012

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cash flow statement

Definition
Summary of the actual or anticipated incomings and outgoings of cash in a firm over an accounting period (month, quarter, year). It answers the questions Where the money came (will come) from? and Where it went (will go)? cash flow statements assess the amount, timing, and predictability of cash-inflows and cash-outflows, and are used as the basis for budgeting and business-planning. The accounting data is presented usually in three main sections: (1) Operating-activities (sales of goods or services), (2) Investing-activities (sale or purchase of an asset, for example), and (3) Financingactivities (borrowings, or sale of common stock, for example). Together, these sections show the overall (net) change in the firm's cash-flow for the period the statement is prepared. Lenders and potential investors closely examine the cash flow resulting from the operating activities. This section represents after-tax net income plus depreciation and amortization and, therefore, the ability of the firm to service its debt and pay dividends. With balance sheet and income statement (profit and loss account), cash

flow statement constitutes the critical set of financial information required to manage a business. Also called statement of cash flows.
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Complementing the balance sheet and income statement, the cash flow statement (CFS), a mandatory part of a company's financial reports since 1987, records the amounts of cash and cash equivalents entering and leaving a company. The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent. Here you will learn how the CFS is structured and how to use it as part of your analysis of a company.

Read more: http://www.investopedia.com/articles/04/033104.asp#ixzz2F5iBryss The Structure of the CFS The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which, on the income statement and balance sheet, includes cash sales and sales made on credit. (For background reading, see Analyze Cash Flow The Easy Way.) Read more: http://www.investopedia.com/articles/04/033104.asp#ixzz2F5iPgaac Operations Measuring the cash inflows and outflows caused by core business operations, the operations component of cash flow reflects how much cash is generated from a company's products or services. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations. Cash flow is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions (appearing on the balance sheet and income statement) resulting from transactions that occur from one period to the next. These adjustments are made because non-cash items are calculated into net income (income statement) and total assets and liabilities (balance sheet). So, because not all transactions involve actual cash items, many items have to be re-evaluated when calculating cash flow from operations. For example, depreciation is not really a cash expense; it is an amount that is deducted from the total value of an asset that has previously been accounted for. That is why it is added back into net sales for calculating cash flow. The only time income from an asset is accounted for in CFS calculations is when the asset is sold. Changes in accounts receivable on the balance sheet from one accounting period to the next must also be reflected in cash flow. If accounts receivable decreases, this implies that more cash has entered the company from customers paying off their credit accounts - the amount by which AR has decreased is then added to net sales. If accounts receivable increase from one accounting period to the next, the amount of the increase must be deducted from net sales because, although the amounts represented in AR are revenue, they are not cash.

An increase in inventory, on the other hand, signals that a company has spent more money to purchase more raw materials. If the inventory was paid with cash, the increase in the value of inventory is deducted from net sales. A decrease in inventory would be added to net sales. If inventory was purchased on credit, an increase in accounts payable would occur on the balance sheet, and the amount of the increase from one year to the other would be added to net sales. The same logic holds true for taxes payable, salaries payable and prepaid insurance. If something has been paid off, then the difference in the value owed from one year to the next has to be subtracted from net income. If there is an amount that is still owed, then any differences will have to be added to net earnings. (For mroe insight, see Operating Cash Flow: Better Than Net Income?) Investing Changes in equipment, assets or investments relate to cash from investing. Usually cash changes from investing are a "cash out" item, because cash is used to buy new equipment, buildings or short-term assets such as marketable securities. However, when a company divests of an asset, the transaction is considered "cash in" for calculating cash from investing. Financing Changes in debt, loans or dividends are accounted for in cash from financing. Changes in cash from financing are "cash in" when capital is raised, and they're "cash out" when dividends are paid. Thus, if a company issues a bond to the public, the company receives cash financing; however, when interest is paid to bondholders, the company is reducing its cash.

Read more: http://www.investopedia.com/articles/04/033104.asp#ixzz2F5isQa4n Conclusion A company can use a cash flow statement to predict future cash flow, which helps with matters in budgeting. For investors, the cash flow reflects a company's financial health: basically, the more cash available for business operations, the better. However, this is not a hard and fast rule. Sometimes a negative cash flow results from a company's growth strategy in the form of expanding its operations. By adjusting earnings, revenues, assets and liabilities, the investor can get a very clear picture of what some people consider the most important aspect of a company: how much cash it generates and, particularly, how much of that cash stems from core operations. Read more: http://www.investopedia.com/articles/04/033104.asp#ixzz2F5j3OWk9

Cash flow statements and projections express a business's results or plans in terms of cash in and out of the business, without adjusting for accrued revenues and expenses. The cash flow statement doesn't show whether the business will be profitable, but it does show the cash position of the business at any given point in time by measuring revenue against outlays. The cash flow statement should be prepared on a monthly basis during the first year, on a quarterly basis for the second year, and annually for the third year. The following 17 items are listed in the order they need to appear on your cash flow statement:

Cash refers to cash on hand in the business. Cash sales are income from sales paid for by cash. Receivables is income from the collection of money owed to the business resulting from sales. Other income is income from investments, interest on loans that have been extended, and the liquidation of any assets.

Total income is the sum of total cash, cash sales, receivables and other income. Material/merchandise is the raw material used in the manufacture of a product (for manufacturing operations only), the cash outlay for merchandise inventory (for merchandisers such as wholesalers and retailers), or the supplies used in the performance of a service.

Direct labor is the labor required to manufacture a product (for manufacturing operations only) or to perform a service. Overhead is all fixed and variable expenses required for the operations of the business. Marketing/sales is all salaries, commissions and other direct costs associated with the marketing and sales departments.

R&D is labor expenses required to support the research and development operations of the business.

G&A is labor expenses required to support the general and administrative functions of the business. Taxes are all taxes, except payroll, paid to the appropriate government institutions. Capital represents the capital requirements to obtain any equipment needed to generate income.

Loan payments are the total of all payments made to reduce any long-term debts. Total expenses are the sum of material, direct labor, overhead expenses, marketing, sales, R&D, G&A, taxes, capital and loan payments.

Cash flow is the difference between total income and total expenses. This amount is carried over to the next period as beginning cash. Cumulative cash flow is the difference between current cash flow and cash flow from the previous period.

A cash flow statement is the financial statement that measures the cash generated or used by a company in a given period.

How It Works/Example:
A cash flow statement typically breaks out a company's cash sources and uses for the period into three categories: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities. It is important to note that cash flow is not the same as net income, which includes transactions that did not involve actual transfers of money (depreciation is common example of a noncash expense that is included in net income calculations but not in cash flow calculations). Cash flow from operating activities are generally calculated according to the following formula: Cash Flows from Operations = Net income + Noncash Expenses + Changes in Working Capital Because working capital is a component of cash flow from operations, investors should be aware that companies can influence cash flow by lengthening the time they take to pay the bills (thus preserving their cash), shortening the time it takes to collect whats owed to them (thus accelerating the receipt of cash), and putting off buying inventory (again thus preserving cash). Cash flow from investing activities primarily reflect the company's purchases or sales of capital assets (that is, assets with a useful life of more than one year that appear on the balance sheet). It is important to note that companies have some leeway about what items are or are not considered capital expenditures, and the investor should be aware of this when comparing the cash flow of different companies. Cash flow from financing activities typically reflect the company's purchase or sale of stock and any proceeds from or payments on debt financing. The measure varies with the different capital structures, dividend policies, or debt terms companies may have.

What Is the Meaning and Objectives of Cash Flow Statements?

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Original post by Erika Johansen of Demand Media Cash flow refers to the amount of cash moving in or out of a business. A cash flow statement, also known as the statement of cash flows, describes the cash flow during a given period covered by the statement. The cash flow statement is one of several core financial documents in any business enterprise.

Contents
1 Purpose of Statement 2 Definition of Cash 3 Statement Contents 4 Statement Uses 4.1 Resources 4.2 References 4.3 About the Author

Purpose of Statement
A cash flow statement is designed to give a more complete financial picture of a company. Rather than analyzing long-term financial prospects, as some other financial documents do, a cash flow statement focuses on a company's access to liquid assets in the short term. Essentially, a cash flow statement shows how much real money a company has.

Definition of Cash
A statement of cash flow doesn't necessarily only include cash. Certain business assets that operate in much the same manner as cash may be included as well. For instance, a cash flow statement may include bank deposits that the business has the right to demand immediately. It may also include any assets that are sufficiently liquid and anticipate minimal changes in value, such that a cash value can be placed on those instruments. The statement can also include expected or realized returns on investments.

Statement Contents
The typical cash flow statement includes three basic areas: operating activities, investing activities and financing activities. The operating activities section describes the amount of incoming and outgoing cash from everyday business operations. The investing activities section includes the incoming cash from the sale

of assets, as well as the outgoing cash used to invest in the same types of assets. The financing activities section describes cash received or distributed from lending and borrowing activities. Depending on the cash flow statement, the company may include dividends paid in either the operating or financing activities section. The names of these sections may vary, but the division into three parts is fairly standard for every cash flow statement. A fourth section may also describe miscellaneous pertinent information, such as exchange of other non-cash assets or payment of income taxes.

Statement Uses
The financial health of a company may appear to be optimistic in the long term, but this doesn't necessarily guarantee that the company has sufficient assets to remain solvent in the short term. A cash flow statement can show whether a company has sufficient immediate assets to pay its bills, or pay dividends to shareholders. The statement may be used not only to assess a company's current cash held, but that company's prospects of cash holdings in the future.

Definition of

cash flow statement

Accounting account of cash transactions a record of a company's cash inflows and cash outflows over a specific period of time, typically a year.

It reports funds on hand at the beginning of the period, funds received, funds spent, and funds remaining at the end of the period. Cash flows are divided into three categories: cash from operations; cash investment activities; and cash-financing activities. Companies with holdings in foreign currencies use a fourth classification: effects of changes in currency rates on cash

cash flow statement

Form 10-K cash flows from investing activities

Definition
A summary of a company's cash flow over a given period of time.

cash flows from investing activities

cash flows from operating activities cash flows from financing activities

Definition
An accounting of funds related to the company's investments, reported on the cash flow statement of a company's annual report. This number shows how much money the company has received (or lost) from its investing activities. It includes money that the company has made (or lost) by investing its excess cash in different investments (stocks, bonds, etc), money the company has made (or lost) from buying or selling subsidiaries, and all the money the company has spent on its physical property, such as plants and equipment.

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cash flows from financing activities

cash flows from operating activities cash flows from investing activities

Definition
An accounting of funds related to the financing of the company which is reported on the cash flow statement of a company's annual report. This is where the company reports the money that it took in and paid out in order to finance its activities. In other words, it calculates how much money the company spent or received from its stocks and bonds. This includes any dividend payments that the company made to its shareholders, any money that it made by selling new shares of stock to the public, any money it spent buying back shares of its stock from the public, any money it borrowed, and any money it used to repay money it had previously borrowed.

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Definition of 'Cash Flow Statement'

One of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public. The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter. Read more: http://www.investopedia.com/terms/c/cashflowstatement.asp#ixzz2F5t8SJIP The Statement of Cash Flows Cash flow statements have three distinct sections, each of which relates to a particular component - operations, investing and financing - of a company's business activities. For the less-experienced investor, making sense of a statement of cash flows is made easier by the use of literally-descriptive account captions and the standardization of the terminology and presentation formats used by all companies: Read more: http://www.investopedia.com/articles/stocks/07/easycashflow.asp#ixzz2F5thBHEv Cash Flow from Operations This is the key source of a company's cash generation. It is the cash that the company produces internally as opposed to funds coming from outside investing and financing activities. In this section of the cash flow statement, net income (income statement) is adjusted for non-cash charges and the increases and decreases to working capital items operating assets and liabilities in the balance sheet's current position. Cash Flow from Investing For the most part, investing transactions generate cash outflows, such as capital expenditures for plant, property and equipment, business acquisitions and the purchase of investment securities. Inflows come from the sale of assets, businesses and investment securities. For investors, the most important item in this category is capital expenditures (more on this later). It's generally assumed that this use of cash is a prime necessity for ensuring the proper maintenance of, and additions to, a company's physical assets to support its efficient operation and competitiveness. Cash Flow from Financing Debt and equity transactions dominate this category. Companies continuously borrow and repay debt. The issuance of stock is much less frequent. Here again, for investors, particularly income investors, the most important item is cash dividends paid. It's cash, not profits, that is used to pay dividends to shareholders. A Simplified Approach to Cash Flow Analysis A company's cash flow can be defined as the number that appears in the cash flow statement as net cash provided by operating activities, or "net operating cash flow," or some version of this caption. However, there is no universally accepted definition. For instance, many financial professionals consider a company's cash flow to be the sum of its net income and depreciation (a non-cash charge in the income statement). While often coming close to net operating cash flow, this professional's shortcut can be way off the mark and investors should stick with the net operating cash flow number.

While cash flow analysis can include several ratios, the following indicators provide a starting point for an investor to measure the investment quality of a company's cash flow: Operating Cash Flow/Net Sales This ratio, which is expressed as a percentage of a company's net operating cash flow to its net sales, or revenue (from the income statement), tells us how many dollars of cash we get for every dollar of sales. There is no exact percentage to look for but obviously, the higher the percentage the better. It should also be noted that industry and company ratios will vary widely. Investors should track this indicator's performance historically to detect significant variances from the company's average cash flow/sales relationship along with how the company's ratio compares to its peers. Also, keep an eye on how cash flow increases as sales increase; it is important that they move at a similar rate over time. History of Free Cash Flow Free cash flow is often defined as net operating cash flow minus capital expenditures, which, as mentioned previously, are considered obligatory. A steady, consistent generation of free cash flow is a highly favorable investment quality - so make sure to look for a company that shows steady and growing free cash flow numbers. For the sake of conservatism, you can go one step further by expanding what is included in the free cash flow number. For example, in addition to capital expenditures, you could also include dividends for the amount to be subtracted from net operating cash flow to get to get a more comprehensive sense of free cash flow. This could then be compared to sales as was shown above. As a practical matter, if a company has a history of dividend payments, it cannot easily suspend or eliminate them without causing shareholders some real pain. Even dividend payout reductions, while less injurious, are problematic for many shareholders. In general, the market considers dividend payments to be in the same category as capital expenditures - as necessary cash outlays. But the important thing here is looking for stable levels. This shows not only the company's ability to generate cash flow but it also signals that the company should be able to continue funding its operations.

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In financial accounting, a cash flow statement, also known as statement of cash flows,[1] is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.[1] As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements.

People and groups interested in cash flow statements include: Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses Potential lenders or creditors, who want a clear picture of a company's ability to repay Potential investors, who need to judge whether the company is financially sound Potential employees or contractors, who need to know whether the company will be able to afford compensation Shareholders of the business.

Purpose
Statement of Cash Flow - Simple Example for the period 01/01/2006 to 12/31/2006 Cash flow from operations $4,000 Cash flow from investing ($1,000) Cash flow from financing ($2,000) Net cash flow $1,000 Parentheses indicate negative values The cash flow statement was previously known as the flow of Cash statement.[2] The cash flow statement reflects a firm's liquidity. The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments. These non-cash transactions include depreciation or write-offs on bad debts or credit losses to name a few.[3] The cash flow statement is a cash basis report on three types of financial activities: operating activities, investing activities, and financing activities. Non-cash activities are usually reported in footnotes. The cash flow statement is intended to[4] provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances provide additional information for evaluating changes in assets, liabilities and equity

improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods indicate the amount, timing and probability of future cash flows

The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.[5]

[edit] History and variations

Cash basis financial statements were very common before accrual basis financial statements. The "flow of funds" statements of the past were cash flow statements. In 1863, the Dowlais Iron Company had recovered from a business slump, but had no cash to invest for a new blast furnace, despite having made a profit. To explain why there were no funds to invest, the manager made a new financial statement that was called a comparison balance sheet, which showed that the company was holding too much inventory. This new financial statement was the genesis of Cash Flow Statement that is used today.[6] In the United States in 1971, the Financial Accounting Standards Board (FASB) defined rules that made it mandatory under Generally Accepted Accounting Principles (US GAAP) to report sources and uses of funds, but the definition of "funds" was not clear."Net working capital" might be cash or might be the difference between current assets and current liabilities. From the late 1970 to the mid-1980s, the FASB discussed the usefulness of predicting future cash flows.[7] In 1987, FASB Statement No. 95 (FAS 95) mandated that firms provide cash flow statements.[8] In 1992, the International Accounting Standards Board issued International Accounting Standard 7 (IAS 7), Cash Flow Statement, which became effective in 1994, mandating that firms provide cash flow statements.[9] US GAAP and IAS 7 rules for cash flow statements are similar, but some of the differences are: IAS 7 requires that the cash flow statement include changes in both cash and cash equivalents. US GAAP permits using cash alone or cash and cash equivalents.[5] IAS 7 permits bank borrowings (overdraft) in certain countries to be included in cash equivalents rather than being considered a part of financing activities.[10] IAS 7 allows interest paid to be included in operating activities or financing activities. US GAAP requires that interest paid be included in operating activities.[11] US GAAP (FAS 95) requires that when the direct method is used to present the operating activities of the cash flow statement, a supplemental schedule must also present a cash flow statement using the indirect method. The IASC strongly recommends the direct method but allows either method. The IASC considers the indirect method less clear to users of financial statements. Cash flow statements are most commonly prepared using the indirect method, which is not especially useful in projecting future cash flows.

[edit] Cash flow activities

The cash flow statement is partitioned into three segments, namely: 1) cash flow resulting from operating activities; 2) cash flow resulting from investing activities;and 3) cash flow resulting from financing activities. The money coming into the business is called cash inflow, and money going out from the business is called cash outflow. [edit] Operating activities 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. Under IAS 7, operating cash flows include:[11] Receipts from the sale of goods or services Receipts for the sale of loans, debt or equity instruments in a trading portfolio Interest received on loans Payments to suppliers for goods and services. Payments to employees or on behalf of employees Interest payments (alternatively, this can be reported under financing activities in IAS 7, and US GAAP) buying Merchandise

Items which are added back to [or subtracted from, as appropriate] the net income figure (which is found on the Income Statement) to arrive at cash flows from operations generally include: Depreciation (loss of tangible asset value over time) Deferred tax Amortization (loss of intangible asset value over time) Any gains or losses associated with the sale of a non-current asset, because associated cash flows do not belong in the operating section.(unrealized gains/losses are also added back from the income statement)

[edit] Investing activities Examples of Investing activities are Purchase or Sale of an asset (assets can be land, building, equipment, marketable securities, etc.) Loans made to suppliers or received from customers

Payments related to mergers and acquisitions. Dividends Received.

[edit] Financing activities 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. Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement. Under IAS 7, Proceeds from issuing short-term or long-term debt Payments of dividends Payments for repurchase of company shares Repayment of debt principal, including capital leases For non-profit organizations, receipts of donor-restricted cash that is limited to longterm purposes

Items under the financing activities section include: Dividends paid Sale or repurchase of the company's stock Net borrowings Payment of dividend tax

[edit] Disclosure of non-cash activities

Under IAS 7, non-cash investing and financing activities are disclosed in footnotes to the financial statements. Under US General Accepted Accounting Principles (GAAP), non-cash activities may be disclosed in a footnote or within the cash flow statement itself. Non-cash financing activities may include[11] Leasing to purchase an asset Converting debt to equity Exchanging non-cash assets or liabilities for other non-cash assets or liabilities Issuing shares in exchange for assets

[edit] Preparation methods

The direct method of preparing a cash flow statement results in a more easily understood report.[12] The indirect method is almost universally used, because FAS 95 requires a supplementary report similar to the indirect method if a company chooses to use the direct method.

[edit] Direct method The direct method for creating a cash flow statement reports major classes of gross cash receipts and payments. Under IAS 7, dividends received may be reported under operating activities or under investing activities. If taxes paid are directly linked to operating activities, they are reported under operating activities; if the taxes are directly linked to investing activities or financing activities, they are reported under investing or financing activities. Generally Accepted Accounting Principles (GAAP) vary from International Financial Reporting Standards in that under GAAP rules, dividends received from a company's investing activities is reported as an "operating activity," not an "investing activity." [13] Indirect method The indirect method uses net-income as a starting point, makes adjustments for all transactions for non-cash items, then adjusts from all cash-based transactions. An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income. This method converts accrual-basis net income (or loss) into cash flow by using a series of additions and deductions.[15] [edit] Rules (operating activities) To Find Cash Flows from Operating Activities using the Balance Sheet and Net Income For Increases in Net Inc Adj Current Assets (Non-Cash) Decrease Current Liabilities Increase For All Non-Cash... *Expenses (Decreases in Fixed Assets) Increase *Non-cash expenses must be added back to NI. Such expenses may be represented on the balance sheet as decreases in long term asset accounts. Thus decreases in fixed assets increase NI. The following rules can be followed to calculate Cash Flows from Operating Activities when given only a two year comparative balance sheet and the Net Income figure. Cash Flows from Operating Activities can be found by adjusting Net Income relative to the change in beginning and ending balances of Current Assets, Current Liabilities, and sometimes Long Term Assets. When comparing the change in long term assets over a year, the accountant must be certain that these changes were caused entirely by their devaluation rather than purchases or sales (i.e. they must be operating items not providing or using cash) or if they are nonoperating items.[16] Decrease in non-cash current assets are added to net income Increase in non-cash current asset are subtracted from net income Increase in current liabilities are added to net income Decrease in current liabilities are subtracted from net income

Expenses with no cash outflows are added back to net income (depreciation and/or amortization expense are the only operating items that have no effect on cash flows in the period) Revenues with no cash inflows are subtracted from net income Non operating losses are added back to net income Non operating gains are subtracted from net income

The intricacies of this procedure might be seen as,

For example, consider a company that has a net income of $100 this year, and its A/R increased by $25 since the beginning of the year. If the balances of all other current assets, long term assets and current liabilities did not change over the year, the cash flows could be determined by the rules above as $100 $25 = Cash Flows from Operating Activities = $75. The logic is that, if the company made $100 that year (net income), and they are using the accrual accounting system (not cash based) then any income they generated that year which has not yet been paid for in cash should be subtracted from the net income figure in order to find cash flows from operating activities. And the increase in A/R meant that $25 of sales occurred on credit and have not yet been paid for in cash. In the case of finding Cash Flows when there is a change in a fixed asset account, say the Buildings and Equipment account decreases, the change is added back to Net Income. The reasoning behind this is that because Net Income is calculated by, Net Income = Rev - Cogs Depreciation Exp - Other Exp then the Net Income figure will be decreased by the building's depreciation that year. This depreciation is not associated with an exchange of cash, therefore the depreciation is added back into net income to remove the non-cash activity. [edit] Rules (financing activities) Finding the Cash Flows from Financing Activities is much more intuitive and needs little explanation. Generally, the things to account for are financing activities: Include as outflows, reductions of long term notes payable (as would represent the cash repayment of debt on the balance sheet) Or as inflows, the issuance of new notes payable Include as outflows, all dividends paid by the entity to outside parties Or as inflows, dividend payments received from outside parties Include as outflows, the purchase of notes stocks or bonds Or as inflows, the receipt of payments on such financing vehicles.[citation needed] Cash Flow Statement

What Does Cash Flow Statement Mean? One of the quarterly financial reports a publicly traded company is required to disclose to the SEC and the public. It provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and its external investment sources as well as all cash outflows that pay for business activities and investments during a specified quarter. Investopedia explains Cash Flow Statement Because public companies tend to use accrual accounting, the income statements they release each quarter may not necessarily reflect changes in their cash positions. For example, if a company lands a major contract, that contract will be recognized as revenue (and therefore income), but the company may not yet receive the cash from the contract until a later date. Although the company may be earning a profit in the eyes of accountants (and paying income taxes on it), the company may, during the quarter, end up with less cash than it had when it started. Even profitable companies can manage their cash flow inadequately. That is why the cash flow statement is important: It helps investors see if a company is having cash troubles.

Read more: What is CASH FLOW STATEMENT? definition of CASH FLOW STATEMENT (Black's Law Dictionary)

Many business owners disregard the importance of cash flow statements because they unwittingly believe that their current financial standing can be construed from other financial reports and projections. Unfortunately, however, a cash flow statement is necessary to adequately assess the incoming and outgoing flow of cash and other resources in a business. Not only will a business owner with a cash flow system be more aware of his or her financial standing, but it will also help investors to make educated decisions on future investments. A business with regular and reliable cash flow statements shows more economic solvency, and is more attractive to investors. A cash flow statement documents the incoming and outgoing cash in plain terms. Future sales and sales made for credit (unless they have been paid off) are not included in the cash flow statement, and most of the data will come from core operations. Payables and receivables should be expressly defined, as should depreciation of product value and inventory that has not yet been moved. This will allow a business owner to compare past periods with the current financial standing and determine whether your receivables have increased or decreased.

This can also help to track your investments next to your receivables and payables. Are your investments increasing or decreasing in value? And has your inventory moved at a steady pace? New or expanding businesses can expect to see a decrease in cash flow, but this doesn't mean that the business is going under. More stables businesses should see a steadily increase in cash flow over a period of several months or years. There are typically five different sections in a cash flow statement, though large businesses might have more complex cash flow systems as required. 1. Beginning Cash Balance - This is the amount of cash that the business has in its possession prior to the start of a cash flow statement period. Owed balances should not be considered here. 2. Projected Cash Sources - This includes any sources of income that will play a part in your cash flow, such as investments and royalties. 3. Projected Cash Uses - This is the amount of cash that the business expects to pay out over the cash flow period, including all costs of operation. 4. Projected Net Change - This is the Projected Cash Uses subtracted from the Beginning Cash Balance, which will give you the net change. (This number may be negative, in which case it should be indicated as a deficit). 5. Ending Cash Balance - This is the Projected Net Change added to the Beginning Cash Balance. You can create a cash flow system for your statements using a normal spreadsheet software such as Microsoft Excel. However, larger businesses may require a sophisticated cash flow statement software that can adequately manage the amount of data inputted every month. Microsoft Dynamics has several financial software options, as does Centage.

The cash flow statement provides information regarding inflows and outflows of cash of a firm for a period of one year. Therefore cash flow statement is important on the following grounds.

1.Cash flow statement helps to identify the sources from where cash inflows have arisen within a particular period and also shows the various activities where

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the

cash

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utilized.

2. Cash flow statement is significant to management for proper cash planning and maintaining a proper matching between cash inflows and outflows.

3. Cash flow statement shows efficiency of a firm in generating cash inflows from its regular operations.

4.Cash flow statement reports the amount of cash used during the period in various long-term investing activities, such as purchase of fixed assets.

5. Cash flow statement reports the amount of cash received during the period through various financing activities, such as issue of shares, debentures and raising long-term loan.

6. Cash flow statement helps for appraisal of various capital investment programmes to determine their profitability and viability.
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Importance

Paradoxically a situation arises when profits are reported but negative cash flows are experienced by the business entities. Therefore, it is of the essence that the changes in cash position be depicted; to know the cash concepts that the statement of cash flows is based upon; to get the information about the cash receipts and the cash payments during a period. Also, it is necessary to assess the ability of a business entity to generate cash so that it can be used as and when it is needed. Moreover, it is required to assess the liquidity and solvency position of a business. Thus, the preparation of cash flow statement is very much useful to management. It is one of the three main financial statements (Balance Sheet, Income Statement and the cash flow statement).

The cash flow statement is an important tool as it explains the changes in cash and gives the information related to the business operating, investing and financing activities in a way to bring advantage to short term analysis and cash planning of the business. The basic objective of cash flow statement is to provide the information to the management about the cash receipts and the cash payments of an organization and it is used in efficient cash management as well. Since one of the important functions of a financial manager is cash management and to ensure if adequate cash is available to meet the liabilities, it is owing to the cash flow statement that the related information is derived. Cash flow statement is useful to plan financial operations in an efficient manner. Cash flows are inflows and outflows of cash and cash equivalents. The cash activities are classified into three main categories of cash inflows and cash outflows. The tree categories are:1- Operating activities 2- Investing Activities 3- Financing Activities Operating Activities:- They are revenue generating activities of the business entity. They include cash effects of transactions by which Net profit or loss is determined. For example; a few of the operating activities are mentioned below: Cash receipts from the sale of goods and providing services. Cash receipts from commissions, fees or other revenues Cash payment to suppliers for goods and services Cash payments to employees Dividends received Investing Activities:- Investing activities are those that involve the acquisition and selling fixed assets.(Land, building and equipments) not held for resale. Below mentioned are few of investing activities:Cash payments to acquire fixed assets. Cash receipts from the disposal of fixed assets Acquiring and disposal of stock from third parties. Making and collecting loans to third parties Financing Activities:- These activities are the activities by which the size and the composition of owners capital is changed. They are as follows:Cash proceeds from issuing shares Cash proceeds from the issuance of debt, loans and short term borrowing. Treasury stock transactions Payments of dividends. Brief overview on the preparation of Statement of Cash flows: Cash flow statement can be prepared by two methods, direct and indirect method. Both methods are acceptable under US GAAP. Both methods provide the same results inasmuch as the direct method differs from the other in the presentation of operating activities. In order to prepare the statement of cash flows, balance sheet at the beginning and at the end of the period are needed as the changes related to assets, liabilities and capital can be determined. The income statement of the current year is used to provide the information about the operations by making the adjustments to the non-cash items. Besides, additional data is collected to know how cash has been used. The statement of cash flow is a better

tool of analysis as cash is more important than working capital and the cash flow statement provides the information about generating cash. It is through the statement of cash flows that the health and efficiency of a business entity is determined while it enables to assess the liquidity and solvency position of a business.

For those of you who either dont know what a cash flow statement is or dont think its very important here are some reasons you might want to reconsider your position on this topic: A cash flow statement can tell you if youre running out of money while youre profitable. Yes, profits are incredibly important if youre a small business, but cash is even more important. Its possible that fast growing businesses can be profitable, and at the same time run out of cash. A cash flow statement can tell you if this is happening. A cash flow statement can tell you if the owner is taking too much money out of the business. Many small businesses are pass through organizations and are taxed as Subchapter S Corporations. Owners of these companies will often take money out in the form of distributions. Distributions dont show up on a profit and loss statement but do show up on a cash flow statement. You will see the results of building inventory, letting receivables grow or paying suppliers more quickly. Changes in any of the three areas above wont show up in your profit and loss statement. They will appear in your balance sheet, but you have to understand how to interpret the changes. In a cash flow statement they are easy to spot and that helps you understand whats happening to your cash. Capital purchases show up as an expense. Your profit and loss statement wont show you if youre buying too much equipment. Your cash flow statement will. If you need equipment, you can see how that equipment should be financed. Youll see what your bank loan payments are doing to your cash. As with equipment purchases, payments to your bank for principal dont show up on your profit and loss statement. These changes in your cash position often mean your business will run out of money if not managed properly. They have nothing to do with your profit and loss statement but they have a huge effect on the cash in your business. And, there is a major rule of business; if you run out of money you dont get to play the game anymore.

CASH - FLOW STATEMENT

Limitations of Cash Flow Statement

Despite a number of uses, Cash Flow Statement suffers from the following limitations: (1) Ignore Accounting Concept of Accrual Basis: As CFS is based on cash basis of accounting, it ignores the basic accounting concept of accrual basis. (2) Ignores Non-cash Transactions: CFS ignores the non-cash transactions. In other words, it does not consider those transactions which do not affect the cash e.g., issue of shares against the purchase of fixed assets, conversion of debentures into equity shares, etc. (3) Not Suitable for Judging the profitability: CFS is not suitable for judging the profitability of a firm as non-cash charges are ignored while calculating cash flows from operating activities. (4) Based on Secondary Data: CFS is based on secondary data. It merely rearranges the primary data already appearing in other statements i.e., Balance Sheet and Income Statement. (5) Short-term analysis: CFS is a technique of short-term financial analysis. It does not help much in knowing the long-term financial position. (6) Not based on full information: CFS does not present true picture of the liquidity of a firm. Liquidity does not depend upon 'cash' alone. Liquidity, also effected by the assets which can be easily converted into cash. Exclusion of these assets obstruct the true reporting of the ability of the firm to meet its liabilities.

Cash flow statement is a statement which shows how the operations of the company affects the cash position of the company during a financial year and therefore companies usually make both cash and funds flow statement. Given below are some of the advantages and disadvantages of cash flow statement Advantages It shows the actual cash position available with the company between the two balance sheet dates which funds flow and profit and loss account are unable to show and therefore it is important to make a cash flow report if you want to know about the liquidity position of the company. It helps the company in making accurate projections regarding the future liquidity position of the company and hence arrange for any shortfall in money by making arrangements in advance and if there is excess than it can help the company in earning extra return out if idle funds. It acts like a filter and is used by many analyst and investors to judge whether company has prepared the financial statements properly or not because if there is any discrepancy in the cash position as shown by balance sheet with cash flow statement than it means that statements are incorrect. Since it shows only cash position, it is not possible to arrive at actual profit and loss of the company by just looking at this statement alone. In isolation this is of no use and it requires other financial statements like balance sheet, profit and loss etc, and therefore limiting its use

Disadvantages

Cash flow statements just as the Income Statement and Balance Sheet are prepared using historical information which is in the past. It therefore does not provide complete information to assess the future cash flows of an entity.

Advantages It shows the actual cash position available with the company between the two balance sheet dates which funds flow and profit and loss account are unable to show and therefore it is important to make a cash flow report if you want to know about the liquidity position of the company. It helps the company in making accurate projections regarding the future liquidity position of the company and hence arrange for any shortfall in money by making arrangements in advance and if there is excess than it can help the company in earning extra return out if idle funds. It acts like a filter and is used by many analyst and investors to judge whether company has prepared the financial statements properly or not because if there is any discrepancy in the cash position as shown by balance sheet with cash flow statement than it means that statements are incorrect. Since it shows only cash position, it is not possible to arrive at actual profit and loss of the company by just looking at this statement alone. In isolation this is of no use and it requires other financial statements like balance sheet, profit and loss etc, and therefore limiting its use

Disadvantages

Sales - Sell the receivables to a factor for instant cash. (leading) Inventory - Don't pay your suppliers for an additional few weeks at period end. (lagging) Sales Commissions - Management can form a separate (but unrelated) company and act as its agent. The book of business can then be purchased quarterly as an investment. Wages - Remunerate with stock options. Maintenance - Contract with the predecessor company that you prepay five years worth for them to continue doing the work Equipment Leases - Buy it Rent - Buy the property (sale and lease back, for example). Oil Exploration costs - Replace reserves by buying another company's. Research & Development - Wait for the product to be proven by a start-up lab; then buy the lab. Consulting Fees - Pay in shares from treasury since usually to related parties

Interest - Issue convertible debt where the conversion rate changes with the unpaid interest. Taxes - Buy shelf companies with TaxLossCarryForward's

Net Income. The net income line from the income statement. Cash is reconciled against this starting point. Depreciation. Depreciation expenses in the income statement do not affect cash. For a personal example, think of the depreciation in your vehicle's value each year. Although it diminishes your net worth by reducing the amount you could sell the car for, it does not affect your cash holdings. Share Based Compensation. Tech companies like Intel often reward employees by granting them stock or stock options. The estimated final value of these must be expensed on the income statement, but issuing stock or options does not require cash, so the amount expensed is added back here. Asset Impairment. The value of assets on the balance sheet are in most cases estimated. Intel's accountants decided that, due to weak demand, the value of some assets was lower than was being carried on the balance sheet. The resulting write-down affected the balance sheet value, but did not affect cash holdings, so it is added back here. This line item also contained employee severance charges that were expensed in the current period, but not yet paid out in cash. Tax Benefit from Share Based Payments. When employees exercise their stock options, the amount of profit they receive can be written off Intel's tax bill, as employee compensation is tax deductible. On the cash flow statement, this value is subtracted from operating cash and added to cash from investments as a re-classification exercise. Amortization of Intangible Assets. Similar to Depreciation or Asset Impairment, Intel has set up a schedule to degrade the balance sheet value of some of it's intangible assets over a period of time. While this affects the balance sheet and is counted as an expense on the income statement, it does not affect cash and is added back in here. Gains on Equity Investments. As mentioned in the balance sheet article, Intel holds equity positions in a few companies it works with, notably VMware (VMW) and Micron (MU). Like

your personal portfolio, unrealized gains and losses affect net worth, but not cash balances. Therefore the gain recorded in the income statement is subtracted back out here. Deferred Taxes. As mentioned in the balance sheet review, deferred taxes represents over or under-estimated tax payment carry-forwards. Again, this is a carrying account, only for tracking tax balances; changes in it are strictly for accounting purposes and do not involve cash. Changes in Working Assets and Liabilities. Intel's accounts receivable, inventory, accounts payable, and other working capital balances obviously fluctuate on a daily basis. Two things to look for here are accounts receivable rising (Intel not able to collect it's owed cash payments), and inventory rising as a percentage of revenues. These represent weakness in Intel's customer base, and rising inventory is a big concern as technology products degrade in value very quickly. Over time, this line item should work out to about break-even. Consistent negative values here indicate poor management of collection and demand forecasting. Net Cash from Operations. The sum of all of the above line items. This is the amount of cash Intel earned over the reported period, one of the most important pieces of data available. Additions to Property, Plant, and Equipment (Capital Expenditures). Any items the company purchases for business that have a useful life over one year are considered "capital expenditures". These are not expensed in the income statement, but are charged off gradually through depreciation. For Intel, these are things like new chip-making equipment, office furniture, computers, and so forth. Acquisitions, Net of Cash Acquired. This is the cash Intel spent purchasing other businesses. Purchases of Available-for-sale Investments. Cash Intel put into purchasing equity and/or bonds for the purpose of earning a higher return. "Available-for-sale" means these are usually done on the open market. Maturities and Sales of Available-for-sale Investments. The inverse of the above. Proceeds from equity and/or bonds that matured or were sold in the period. Investments in Non-marketable Equity Instruments. Cash spent for a considerable equity investment that was done off-the-market. In this particular case, Intel invested nearly $1.5 billion for a joint venture stake in IM Flash Technologies.

Net Proceeds from Divestitures. Cash received from the sale of various assets and businesses the company no longer deemed strategic. Looking over the 10-K, this includes optical networking components group, media and signaling businesses, and several others. Other Investing Activities. The catch-all for investing-based items that don't fit anywhere else. These consist of a number of items spread all over the 10-K, which I won't list here. Net Cash from Investing Activities. All of the investing based items (here, the previous 7) added together. Decrease in Short-term Debt. Cash Intel used to pay off some of it's short-term debt balances. Proceeds from Government Grants. There is not much detail on this in the 10-K. Presumably Intel received a nominal amount of cash from some government agency. Excess Tax Benefit from Share-based Payments. See the similar entry under the operating cash section. Additions to Long-term Debt. Cash received from selling corporate bonds. Proceeds from Sales of Shares to Employees. Most tech companies, and many other companies as well, have employee share purchase programs where employees can purchase equity at reduced prices. The amount of cash Intel's employees paid the company for these shares is recorded here. Purchase and Retirement of Common Stock. The amount Intel spent to buy back and retire it's own shares. Payment of Dividends. Just what it seems - the cash paid out to shareholders in the form of dividends. Net Cash from Financing Activities. All of the financing based items (here, the previous 7) added together. Net Change in Cash Holdings. Calculated as (Net Cash from Operations + Net Cash from Investing + Net Cash from Financing). This is the amount of cash added to or subtracted from

Intel's balance sheet during the period. In this case, Intel increased it's cash balance by $709 million dollars over the fiscal year. Free Cash Flow. Free cash flow can be calculated two ways. Classically it's (Net Cash from Operations + Depreciation - Capital Expenditures). MagicDiligence, and Joel Greenblatt in The Little Book that Beats the Market, calculate it as (Net Cash From Operations - Depreciation). Free cash flow is the cash available for the company to invest in growth or pay back to shareholders through share buybacks or dividend payments. MagicDiligence uses depreciation as this is a more accurate view of "maintenance capital expenditures". The traditional calculation can include capital expenditures used for growth (for example, buying new property or buildings), which unfairly skews the free cash flow calculation for quickly growing companies. Dividend Payout Ratio. Calculate as (Dividends Paid / Free Cash Flow). This percentage shows you how much of free cash flow is being paid out in dividends. Too high of a percentage (over 60-70%) could indicate an unsustainable dividend. Free Cash Flow Margin. Calculate as (Free Cash Flow / Revenues). This is the amount of every dollar of sales that is converted into free cash flow. The higher the better here. Look for at least 5%. Intel's very high 21% figure is just another indication of the top quality nature of the company. Free Cash to Earnings Ratio. Calculate as (Free Cash Flow / Net Income). A big red flag is when this is consistently less than 100%. We will discuss this more in the red/green flag articles.

Interest costs (rates) are incurred by a company when owned or borrowed funds are invested in durable assets, because such money is tied up and cannot be used for other purposes. On borrowed money, there will be a regular interest payment, a standing obligation which must be met regardless of the level of use of the asset purchased with the borrowed money. Also, an interest charge should be calculated on equity capital. In this case, the charge would be an opportunity interest cost. An annual charge should be made because the money invested has alternative productive uses, which may range from earning interest on a savings account to increasing production. c) Repairs costs are principally variable costs incurred on assets because of the level of use of the assets through wear and tear. Some durable assets, however, deteriorate with time even

though they are not used. Fences, buildings and some moving parts on machinery and equipment are prime examples, although they deteriorate even more rapidly with use. d) Taxes are fixed costs that are usually incurred on machinery, buildings and some other durable assets. Taxes are usually not related to the level of use or productive services provided. Thus, any investment analysis that ignores the annual tax obligation associated with the proposed investment will be incomplete. e) Insurance costs are also fixed costs that are incurred when a financed asset is purchased and has to be protected against fire, weather, theft, etc. Usually, lenders require that a financed asset be insured as a meant of security for the loan. Some operators, particularly those with low equity, also insure some of their more valuable assets because of the strain the loss of those assets would place on the financial condition of the business. In this country, the major insurance companies are Old Mutual Insurance and General Accident Insurance, Minet Insurance, Prudential Insurance, etc

Non-cash items include any outflows or inflows that are accrued over time such as deprecitaion/amortization expenses or accretion expenses but are not necessarily physical cash outflows (the money is not going anywhere perse). Hope that helps.

Cash items in the cash flow statement encompasses all items that can be categorised under cash and cash equivalent. these include cash, bank, bank overdraft, short term investment.