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.

Answer 1

Cash flow statement is prepared to provide information about a company's gross payments and receipts

Cash flow statement consisting of 3 sections

1.operating activities,

2.investing activities, and

3.financing activities.

Lets check in detail,

1.Cash Flows From Operations

This portion consisting of sources and uses of cash from daytoday regular business activities in a given period.

Includes receipts from,

• sale of goods and services

• collection of receivables

• lawsuit settlements

• settlement of insurance claims

• supplier refunds

• Receipts from licensees

cash outflows for operating activities includes paymeents to

• employees

• suppliers

• payments of fines

• payments to settle lawsuits

• taxes payments

• refunds to customers

• payments to settle asset retirement obligations

• interest to creditors

• Cash payments of contributions

2.Investing activities

under this section of cash flow statement inflow and outflow of cash through investing activities are recorded It consisting of purchasing / selling fixed assets, such as a plant or machinery.

Receipts includes,

• inflow from sales of property, plant, and equipment
• receipts from the sale of debt instruments of other entities
• from sale-of-equity instruments of other entities

Outflows includes

• Purchase of property, plant, and equipment
• purchase of debt instruments of other entities
• purchase of equity instruments of other entities etc..

3.financing activities.

Under this section all the financing activities which are not recorded in the investing activities section are recorded here. This section mainly stress on the capital raising activities and its pay back to the investors.

financing activities includes

• Receipt by issuing capital/stock
• Receipt from debt
• Dividend paid to shareholders(outflow)

These are the major sections of cash flow statement.

following are the 2 methods of cash flows,

1. Direct Method:

The direct method shows each major class of gross cash receipts and gross cash payments.

2. Indirect Method:

Indirect method adjusts accrual basis of net profit or loss for the effects of non-cash transactions.

simple cash flow statement is shown below

Cash Flow Statement
	For the Year Ending	31-12-2019
	Cash at Beginning of Year	5,00,000
Operations
Cash receipts from
	Customers	9,00,000
	Other Operations
Cash paid for
	Inventory purchases	-1,64,000
	General operating and administrative expenses	-82,000
	Wage expenses	-8,23,000
	Interest	-16,500
	Income taxes	-32,800
Net Cash Flow from Operations	-2,18,300
Investing Activities
Cash receipts from
	Sale of property and equipment	3,33,600
	Collection of principal on loans
	Sale of investment securities
Cash paid for
	Purchase of property and equipment	-75,000
	Making loans to other entities
	Purchase of investment securities
Net Cash Flow from Investing Activities	2,58,600
Financing Activities
Cash receipts from
	Issuance of stock	68,000
	Borrowing
Cash paid for
	Repurchase of stock (treasury stock)
	Repayment of loans	-34,000
	Dividends	-53,000
Net Cash Flow from Financing Activities	-19,000
Net Increase in Cash	21,300
	Cash at End of Year	5,21,300