Question

Q3 Corporations must disclose their financial reports to their stakeholders which should be publish in annual reports of the corporation. Download an annual report of any corporation in KSA and study the Cash flow statement prepared by them to answer the following questions: 1. Explain in detail how the cash flow statement was prepared by the corporation. 2. Which method was used to prepare the statement? Explain the other method that can be used to prepare cash flow statement, with numerical examples. 3. Calculate the corporations cashflow on total asset ratio and explain how this ration can help the management.

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Answer 1

Part A:-

Cash Flow: Inflows and surges of money and money counterparts Cash Balance: Cash close by and request stores (money balance on the balance sheet) Cash Equivalents: Cash equivalents include money held as bank stores, transient speculations, and any effective money convertible resources – incorporates overdrafts and money counterparts with momentary developments (under a quarter of a year). 1. Operating Cash Flow Operating cash flows exercises are the vital income creating exercises of the entity. Cash Flow from Operations typically incorporates the incomes related to deals, buys, and different costs. The company's chief monetary official (CFO) chooses between the immediate and circuitous introduction of working income: Direct Presentation: Operating incomes are introduced as a rundown of incomes; money in from deals, money out for capital consumptions, and so on. This is a straightforward however seldom utilized strategy, as the circuitous introduction is progressively normal. Roundabout Presentation: Operating incomes are introduced as a compromise from benefit to income: Profit   P Depreciation   D Amortization   A Debilitation expense   I Change in working capital   ΔWC Change in provisions   ΔP Intrigue Tax   (I) Tax   (T) Working money flow   OCF The things in the CFS are not all genuine incomes, yet "reasons why income is not quite the same as a benefit." Depreciation expense reduces benefit yet doesn't affect income (it is a non-money cost). Consequently, it is included back. Additionally, if the beginning stage benefit is above premium and assessment in the salary articulation, at that point premium and expense incomes should be deducted on the off chance that they are to be treated as working incomes. There is no particular direction on which benefit sum ought to be utilized in the compromise. Various organizations utilize working benefit, benefit before a charge, benefit after assessment, or net income.  Clearly, the specific beginning stage for the compromise will decide the specific changes made to get down to a working income number. 2. Investing Cash Flow Income from Investing Activities includes the procurement and removal of non-current resources and different speculations excluded from money reciprocals. Investing incomes regularly incorporate the incomes related to purchasing or selling property, plant, and gear (PP&E), other non-current resources, and other budgetary resources. Money spent on buying PP&E is called capital uses (or CapEx for short). 3. Financing Cash Flow Income from Financing Activities are exercises that bring about changes in the size and structure of the value capital or borrowings of the element. Financing incomes normally incorporate incomes related to acquiring and reimbursing bank credits, and giving and repurchasing shares. The installment of a dividend is likewise rewarded as a financing income.
The statement of cash flows is prepared by following these steps: Step 1: Determine Net Cash Flows from Operating Activities Using the indirect method, operating net cash flow is calculated as follows: Begin with net income from the income statement. Add back non-cash expenses, such as depreciation, amortization, and depletion. Remove the effect of gains and/or losses from disposal of long-term assets, as cash from the disposal of long-term assets is shown under investing cash flows. Adjust for changes in current assets and liabilities to remove accruals from operating activities. Step 2: Determine Net Cash Flows from Investing Activities Investing net cash flow includes cash received and cash paid relating to long-term assets. Step 3: Present Net Cash Flows from Financing Activities Financing net cash flow includes cash received and cash paid relating to long-term liabilities and equity. Step 4: Reconcile Total Net Cash Flows to Change in Cash Balance during the Period To reconcile the beginning and ending cash balances: The net cash flows from the first three steps are combined to be total net cash flow. The beginning cash balance is presented from the prior year balance sheet. Total net cash flow added to the beginning cash balance equals the ending cash balance. Step 5: Present Noncash Investing and Financing Transactions Transactions that do not affect cash but do affect long-term assets, long-term debt, and/or equity are disclosed, either as a notation at the bottom of the statement of cash flow, or in the notes to the financial statements.
Part B:-
Another method for preparing CFS is Direct method
most common types of receipts and payments used in the direct method format: Receipts received from Customers Payments paid to Suppliers Payments paid to Employees Interest Payments Income Tax Payments
For Example
Part 3:- The Cash return on Assets (Cash ROA) proportion is utilized to contrast a business' exhibition and that of other industry individuals. It is a proficiency proportion that rates real incomes to organization resources without being influenced by salary acknowledgment or pay estimations. The proportion can be utilized inside by the organization's investigators or by potential and current financial specialists.