FSS: Cash Flow Statement Analysis

Md. Ruhul Amin

Assistant Professor, BIBM
 SCF: Concept

The statement of cash flows reports the

cash Receipts, cash Payments, and net
Change in cash resulting from the
Operating, Investing, and Financing
activities of an enterprise during a
particular period.
 SCF: Concept

CFS Shows:
Cash Receipt
Cash Payments
Net Change in Cash
 SCF: Concept

Activities of Cash Flows:

Operating Activity
Investing Activity
Financing Activity
 SCF: Concept

The Main Aim:

To Identify the Changes in Cash Balance

To Analyze the Changes in Cash Balance

Note: FASB and IAS-7 (IFRS) say the same Purpose

 SCF: Concept

It Provides the answer of Three Questions:

Where did the cash come from during the period
What was the cash used for during the period
What was the changes in cash bl. during the period

Note: CFS is necessary as we Follow Accrual Basis

Accounting System
 SCF: Concept

Accrual Basis Accounting System

Transaction should be recognized and recorded when occurred

Revenue will be recorded when it is earned rather than cash is receipt

Expenses will be recorded when it is incurred rather than cash is paid

 SCF: Concept

Cash Basis Accounting System

Transaction should be recognized when cash is receipt or paid

Revenue will be recorded when cash is receipt

Expenses will be recorded when cash is paid

SCF: Classification of Cash Flows

Operating Activities
Investing Activities
Financing Activities
 SCF: Classification of Cash Flows

Operating Activities

That Create Revenues and Expenses

CF from O.A
= Rec. from cust. Paid to suppliers
 SCF: Operating Activities

Cash inflows:

From sale of goods or services

Inst. received and dividends received
 SCF: Operating Activities

Cash outflows:

To Suppliers for Inventory

To Employees for Services
To Government for Taxes
To Lenders for Interest
To Others for Expenses
 SCF: Investing activities

Investing Activities

Acquiring and disposing of assets and

investments

CF from I.A
= Sale of Assets & Invt. Acqu. of Assets &
Invt.
 SCF: Investing activities

Cash inflows:

From sale of property, plant, and equip.

From sale of debt or equity securities of

other entities

From collection of principal on loans to

other entities
 SCF: Investing activities

Cash outflows:

To purchase property, plant, and equip.

To purchase debt or equity securities of other
entities

To make loans to other entities

 SCF: Financing activities

Financing Activities
Relating to Share & Debenture i.e.
Equity and Debt

CF from F.A =
Cash Received Cash paid for dividend
from issue of - Repaying St. & Lt. Loan
share or debt Reacquisition of Share
 SCF: Financing activities

Cash inflows:
From sale of equity securities (own)
From issuance of debt (own)

Cash Outflows:
To stockholders as dividends
To redeem long-term debt or reacquire
capital stock
 SCF: Steps for Preparation

There are Three Steps to Prepare SCF:

Determine the net increase / decrease in

cash: Ending - Beginning
Determine net cash provided/ used by
Operating Activities
Determine net cash provided/ used by
Investing and Financing Activities
 SCF: Usefulness

The entitys ability to generate future cash flows

The entitys ability to repayment of bank loan, dividends

and meet obligations

The reasons for the difference between net income and net
cash provided by operating activities

The cash investing and financing transactions during the

period
 SCF: Sources of Information

Information to prepare SCF usually comes

from Three Sources:

Comparative Balance Sheet

Current Income Statement
Additional Information

Note: The SCF deals with cash receipts and payments, so the
accrual concept is not used in the preparation of the SCF.
 SCF: Methods

There are two methods for preparing The

SCF:

Indirect Method
Direct Method

Note: Generally companies favor Indirect method because it

is easier to prepare and it focuses on the differences between NI
and Net CF from Ope. Activities.
 SCF: Methods

The indirect method

Derives cash flows from accrual basis

statements

Indirect method starts from N/P (L)

Net cash provided by operating,

financing and investing activities are
adjusted with the profit
 SCF: Methods
The Direct method
Determines cash flows directly for each source or use of
cash

Shows main receipts and payments starting from cash

receive from customer under cash flows from operating
activities heading.

Note: The only distinctive area between direct method

and indirect method is Cash Flow from Operating
Activities. Investing and financing activities are same
under both methods
 SCF: Non Cash Transactions

That do NOT affect cash are NOT reported in the

body of the statement of cash flows. They are
reported:

In a separate schedule at the bottom of the statement of

cash flows or

In a separate note or supplementary schedule to the

financial statements .
 SCF: Non Cash Transactions

Examples of non cash transaction:

Issuance of common stock to purchase assets

Conversion of bonds into common stock.
Issuance of debt to purchase assets
Exchanges of plant assets
Thank You All