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

Name of the Company: Mobile Telecommunications Company Saudi Arabia (Zain)

                                          (A Saudi Joint Stock Company)

1.

i) Cash Flow during the period are classified by Operating, Investing and Financing Activities.

A: Operating Activities- Cash flow from Operating Activities

Net Profit                                                                                 XX
+Non cash items like Depreciation                                    XX

+/- Non Operating Items like profit/loss on sale

     of assets, etc                                                                        XX

Operating Profit before working capital changes      XX

+/- Adjustment for working capital changes                  XX

Cash Flow generated from operating Activities         XX

- Financial charges                                                             XX

Net Cash Flow from Operating Activities                      XX

B: Investing Activities-Cash flow from investing Activities

Changes in investment & Long term Assets              

+/- Sale / Purchase of Fixed Assets and Long

       Term Investments                                                           XX

Net Cash Flow from Investing Activities                        XX

C: Financing Activities-Cash Flow from Financing Activities

Changes in capital and Long Term Liabilities

+ Proceeds from Long Term Borrowings                         XX

- Debt arrangement cost                                                 XX

Net Cash Flow from Financing Activities                       XX

        Matters disclosed in Cash Flow Statement:

i)    Major classes of gross cash receipts and gross cash payments arising from Investing and Financing activities , separately, except to the extent that cash flows are reported on a net basis.

2) Indirect Method was used to prepare cash flow statement. Other method that cab be used is Direct Method.

Example of Direct Method:

A: Cash Flow from Operating Activities:

Collection from Debtors                                        350000

Payment to Creditors                                             (130000)

Cash Generated From Operations before

Taxes                                                                            220000

       Less: Taxes                                                                  (55000)

      Net Cash Flow from Operating Activities                                        165000

      B : Cash Flow from Investing Activities:

           Purchase Fixed Assets                                       (400000)

           Sold Fixed Assets                                                  70000

       Net Cash Flow from Investing Activities                                         (330000)

C:   Cash Flow from Financing Activities:

     Issue of Capital                                                          500000

       Payment of Bank Loan                                            (300000)

       Dividend Paid                                                             (100000)

     Net Cash Flow from Financing Activities                                          100000

D: Net Increase in Cash andCash Equivalent                                        (65000)

E: Opening Balance of Cash & Cash Equivalent                                  80000

F: Closing Balance of Cash & Cash Equivalent                                    15000