FINANCIAL STATEMENT ANALYSIS STATEMENT OF CASH FLOWS

funds generated from its operations (profit) and FINANCIAL STATEMENTS Statement of Cash Flows Funds are the financial sources obtained from its activity or financing activity. There are two types of funds; funds generated from its operations (profit) and Long term funds raised by issue of shares (paid- in capital), debentures or sale of assets

Fund flows are reported in; Fund Flow Statement, FINANCIAL STATEMENTS Statement of Cash Flows Fund flows are reported in; Fund Flow Statement, Changes in Working Capital and Cash Flow Statement

Statement of Cash Flows FINANCIAL STATEMENTS Statement of Cash Flows Fund Flow Statement is prepared to analyze the changes in financial position of the entity between previous period (opening) and current (ending) period. This statement shows the inflow and outflow of funds.

FINANCIAL STATEMENTS Statement of Cash Flows Changes in Working Capital Statement is prepared on the base of working capital.

Statement of Cash Flows FINANCIAL STATEMENTS Statement of Cash Flows This statement is important to analyze; How much cash is generated form or used in operations? How are dividends paid ? What is the sources of cash for debt payments? How is the investment activities financed? What is the source of cash for new fixed assets? Why the cash get low, when the income increase? What is the use of cash received from new financing?

Statement of Cash Flows FINANCIAL STATEMENTS Statement of Cash Flows In meaning of cash, cash fund flows are reported in cash flow. The purpose of statement of cash flows is to provide information on cash inflows and outflows for a period. It also separates the sources and uses of cash flow by separating them into operating, investing and financing activities.

Cash Inflows and Outflows

What is Cash and Cash Equivalents? FINANCIAL STATEMENTS Preparing of Statement of Cash Flows In Statement of Cash Flows cash receipts and cash payments by operating, financing and investing activities are reported. What is Cash and Cash Equivalents? Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Cash flows are inflows and outflows of cash and cash equivalents. FINANCIAL STATEMENTS Preparing of Statement of Cash Flows Balance Sheet 20X1 20X2 Increase Decrease   Cash and Cash Equivalents 690 1.025 335** Financial Assets 100 150 50 Trade Receivables 600 500 (100) Inventories 610 835 225 Long-term Financial Assets 300 340 40 Tangible Assets 900 750 (150) What is Cash Flows? Cash flows are inflows and outflows of cash and cash equivalents.

Preparing of Statement of Cash Flows FINANCIAL STATEMENTS Preparing of Statement of Cash Flows Balance Sheet 20X1 20X2 Increase Decrease   Cash and Cash Equivalents 690 1.025 335** Financial Assets 100 150 50 Trade Receivables 600 500 (100) Inventories 610 835 225 Long-term Financial Assets 300 340 40 Tangible Assets 900 750 (150) What is Cash Flows? The cash inflows and outflows of an entity are reported by its operating, financing and investing activities.

Preparing of Statement of Cash Flows FINANCIAL STATEMENTS Preparing of Statement of Cash Flows What is Cash Flows? Operating activities are the principal revenue-producing activities of the entity and other activities that are not investing or financing activities. Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. Balance Sheet 20X1 20X2 Increase Decrease   Cash and Cash Equivalents 690 1.025 335** Financial Assets 100 150 50 Trade Receivables 600 500 (100) Inventories 610 835 225 Long-term Financial Assets 300 340 40 Tangible Assets 900 750 (150)

Presentation of Statement of Cash Flows Examples of Cash Flows from Operating Activities cash receipts (inflow) from the sale of goods and the rendering of services, royalties, fees, commissions and other revenue; Income Statement cash payments to suppliers for goods and services, employees changes in working capital (Increase/Decrease in Current Assets and Current Liabilities unless they can be specifically identified with financing and investing activities) Balances Sheet cash payments or refunds of income taxes Balance Sheet Cash flows from operating activities are primarily derived from the principal revenue- producing activities of the entity.

Presentation of Statement of Cash Flows Cash Flows from Operating Activities A. Profit of the Current Period Profit After Tax of Current Period Provisions of Tax B. Income Items Which are not Caused Cash Inflow (-) Income Accruals Deferred Income Fair Value Profit Reversals of provisions. C. Expense Items Which are not Caused Cash Outflow (+) Amortization Costs Provisions Expense Accruals Fair Value Loss Cash flows from operating activities comprises the income and expense which reported in income statement. However the income statement must be presented according to accrual basis. Accrual accounting, which is used in income statement requires that income and expenses must be reported when its earned/incurred regardless of received or paid in cash.

Presentation of Statement of Cash Flows Cash Flows from Operating Activities A. Profit of the Current Period Profit After Tax of Current Period Provisions of Tax B. Income Items Which are not Caused Cash Inflow (-) Income Accruals Deferred Income Fair Value Profit Reversals of provisions. C. Expense Items Which are not Caused Cash Outflow (+) Amortization Costs Provisions Expense Accruals Fair Value Loss So the information reported in income statement must be converted to cash basis. In converting to cash basis, the income items which are not caused cash inflow and the expense items which are not caused cash outflow must be eliminated.

Presentation of Statement of Cash Flows The operating activities comprise the changes in working capital. Working capital items are refers to the assets and liabilities used in normal operating cycle. Cash Flows from Operating Activities A. Profit of the Current Period (+) B. Income Items Which are not Caused Cash Inflow (-) C. Expense Items Which are not Caused Cash Outflow (+) D. Tax Payments (-) E. Changes in Working Capital Decrease/Increase in Trade Receivables (+,-) Decrease/Increase in Other Receivables (+,-) Decrease/Increase in Inventories (+, -) Decrease/Increase in Other Current Assets (+, -) Decrease/Increase in Trade Payables (-,+) Decrease/Increase in Other Current Liabilities (-, +)

Presentation of Statement of Cash Flows Investing Activities The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources to generate future income and cash flows. Only expenditures that result in a recognized asset in the statement of financial position are proper for classification as investing activities.

Presentation of Statement of Cash Flows Cash Flows from Investing Activities Cash receipts from sales of financial assets (+) Cash receipts from sales of property,(+) Cash receipts from sales of intangible assets (+) Cash payments for acquire of financial assets (-) Cash payments for acquire of property,(-) Cash payments for acquire of intangible assets (-) Investing Activities The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources to generate future income and cash flows. Only expenditures that result in a recognized asset in the statement of financial position are proper for classification as investing activities.

Presentation of Statement of Cash Flows Examples of Cash Flows from Financing Activities Cash inflows from ıssuing shares or other equity ınstruments (+) Cash inflows from issuing debentures, loans, notes, bonds, mortgages and other short-term and long term borrowings (+) Cash repayments (outflow) of amounts short-term and long-term borrowings (-) Cash payments (outflow) to owners as dividends Financing Activities The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital to the entity.

Presentation of Statement of Cash Flows The financial statements of ABC Co. are as follows: Balance Sheet 20X1 20X2 Cash and Cash Equivalents 690 1.025 Financial Assets 100 150 Trade Receivables 600 500 Inventories 610 835 Long-term Financial Assets 300 340 Tangible Assets 900 750 Total 3.200 3.600 Short-Term Loans 450 400 Trade Payables 550 Tax Payables 200 Tax Provisions 50 Long-Term Loans 800 Paid-in Capital 1.000 Reserves Net Profit 350 Income Statement  20X2 Sales 15.000 Cost of Goods Sold (13.000) Gross Profit 2.000 Operating Expenses (1.300) Operating Profit 700 Other Income 350 Other Expense (150) Interest Expense (500) Profit Before Tax 400 Tax Provisions (50) Net Profit Additional Notes: The investments in long term financial assets accounts 40 TL. The amortization cost of current period is 150 TL.

Balance Sheet 20X1 20X2 Increase Decrease Cash and Cash Equivalents 690 1.025 335   Financial Assets 100 150 50 Trade Receivables 600 500 (100) Inventories 610 835 225 Long-term Financial Assets 300 340 40 Tangible Assets 900 750 (150) Total 3.200 3.600 Short-Term Loans 450 400 (50) Trade Payables 550 Tax Payables 200 Tax Provisions Long-Term Loans 800 Paid-in Capital 1.000 Reserves Net Profit 350 STATEMENT OF CASH FLOW   20X2 Cash Flows from Operating Activities   225 Cash Received from Profit Profit Before Tax of Current Period 400 Expense Items Which are not Caused Cash Outflow (+) - Amortization Costs (+) 150 Changes in Working Capital - Decrease in Trade Receivables 100 - Decrease in Trade Payables (150) - Increase in Financial Assets (50) - Increase in Inventories (225) - Increase in Tax Payables Tax Payments (100) Cash Flows from Investing Activities (40) Cash payments for acquire of Long-Term Financial Assets Cash Flows from Financing Activities Cash payments of Short-Term Loans Cash inflows from long-term loans 300 Cash payments of Capital Increase in Cash and Cash Equivalents 335 Beginning Cash and Cash Equivalents 690 Ending Cash and Cash Equivalents 1025