Question

What is a cash flow statement and a cash flow analysis? Please provide a visual example.

Answer 1

Cash Flow statement: It generally tells about how much cash is generated using the three primary activities of any business that is operating, financing and investing. There are two methods to do that one is direct and other one is indirect.

Please find the example of cash flow statement

Direct Method

Statement of Cash Flows
	2018		2017
Cash flows from operating activities
Cash receipts from customers	31,150.00		26,015.00
Cash paid to suppliers and employees	(29,190.00)		(25,630.00)
Cash generated from operations	1,960.00		385.00
Interest paid	(270.00)		(280.00)
Income taxes paid	(300.00)		(45.00)
Dividends paid	(200.00)		-
Net cash from operating activities	1,190.00		60.00
Cash flows from investing activities
Business acquisitions, net of cash acquired	(550.00)		-
Purchase of property, plant and equipment	(350.00)		(200.00)
Proceeds from sale of equipment	70.00		-
Acquisition of portfolio investments	-		(500.00)
Investment income	400.00		350.00
Net cash used in investing activities	(430.00)		(350.00)
Cash flows from financing activities
Proceeds from issue of share capital	250.00		-
Proceeds from long-term borrowings	250.00		200.00
Payment of long-term borrowings	(190.00)		(70.00)
Net cash used in financing activities	310.00		130.00
Net increase in cash and cash equivalents	1,070.00		(160.00)
Cash and cash equivalents at beginning of period	160.00		320.00
Cash and cash equivalents at end of period	1,230.00		160.00

Indirect Method:

Statement of Cash Flows
	2018		2017
Cash flows from operating activities
Profit before taxation	4,350.00		1,230.00
Adjustments for:
Depreciation	450.00		260.00
Investment income	(500.00)		(350.00)
Interest expense	400.00		300.00
Profit / (Loss) on the sale of property, plant & equipment	(50.00)		-
Working capital changes:
(Increase) / Decrease in trade and other receivables	(500.00)		(505.00)
(Increase) / (Decrease) in inventories	(450.00)		(750.00)
Increase / (Decrease) in trade payables	(1,740.00)		200.00
Cash generated from operations	1,960.00		385.00
Interest paid	(270.00)		(280.00)
Income taxes paid	(300.00)		(45.00)
Dividends paid	(200.00)		-
Net cash from operating activities	1,190.00		60.00
Cash flows from investing activities
Business acquisitions, net of cash acquired	(550.00)		-
Purchase of property, plant and equipment	(350.00)		(200.00)
Proceeds from sale of equipment	70.00		-
Acquisition of portfolio investments	-		(500.00)
Investment income	400.00		350.00
Net cash used in investing activities	(430.00)		(350.00)
Cash flows from financing activities
Proceeds from issue of share capital	250.00		-
Proceeds from long-term borrowings	250.00		200.00
Payment of long-term borrowings	(190.00)		(70.00)
Net cash used in financing activities	310.00		130.00
Net increase in cash and cash equivalents	1,070.00		(160.00)
Cash and cash equivalents at beginning of period	160.00		320.00
Cash and cash equivalents at end of period	1,230.00		160.00

Cash Flow Analysis: with the help of cash flow statement one has find where the company is performing well or not and generating enough cash so that it can run day to day business.

Example: If we analyze above two cash flow statement then we can find that the net increase in cash and cash equivalents is decreased in 2017 and increased in 2018. Not only that we can also analyze which activity is leading to this decrease if we see then we will find that cash flow from investing activity in both year is negative but operating activity is generating huge cash flow in 2018 due to that there is huge increase in cash and cash equivalents.