FINANCIAL STATEMENT ANALYSIS STATEMENT OF CASH FLOWS CASE STUDY

Preparing a Statement of Cash Flows Order of Presentation: Operating activities. Investing activities. Financing activities. Direct Method Indirect Method Three Sources of Information: Comparative balance sheets Current income statement Additional information

Cash Flow from Operating Activities : Direct Method Amount (Rs.) Cash Receipts from : Sales Commission & Fees Interest Received Cash Payment for : Purchases Payments to and for employees Operating Expenses Interest Payments Direct Taxes Paid Net Cash Flow from Operating Activities XXX Amount (Rs.) XXX

Cash Flow from Operating Activities : Indirect Method Amount (Rs.) Net Profit before Tax Adjustment for : Depreciation Loss on Sale of Fixed Assets Loss on revaluation Operating Profit before Working Capital Changes Adjustment* for : Trade and other Receivables Inventories or Stocks Trade Payments or (Creditors and B/P) Cash Generated from Operations Interest Paid Taxes Paid Net Cash Flow from Operating Activities xxx XXX

Preparing the Statement of Cash Flows Indirect and Direct Methods Companies favor the indirect method for two reasons: It is easier and less costly to prepare, and It focuses on the differences between net income and net cash flow from operating activities.

CASH FLOW STATEMENT (INDIRECT METHOD) 1.1.20X1- 31.12.20X1 I. Cash Flow From Operating Activities A. Cash flows from Sales Sales (+) Increase/Decrease in Trade Receivables (-, +) B. Cash Flows from Other Income 1. Other Income 2. Adjustments (Income Items Which Are Not Caused Cash Inflow) - Income Accruals (-) - Reversal Of Provisions (-) - Tangible Assets Sales Profit (-) - Deferred Income Related With Current Period (-) C. Cash Outflows from Costs 1. Cost of Goods Sold (-) 2. Increase/Decrease in Inventories (-, +) 3. Increase/Decrease in Trade Payables (+, -) 4. Adjustments (Expense Items Which Are Not Caused Cash Outflow) Depreciation And Amortization Costs Prepaid Expenses Related With Current Period Expense Accruals Provisions For Retirement Benefits D. Cash Outflows from Operating Costs 1. Operating Costs (-) 2. Adjustments (Expense Items Which Are Not Caused Cash Outflow)

CASH FLOW STATEMENT (INDIRECT METHOD) 1.1.20X1- 31.12.20X1 I. Cash Flow From Operating Activities E. Cash Outflows from Interest Expenses 1. Interest Expenses (-) 2. Adjustments (Expense Items Which Are Not Caused Cash Outflow) Expense Accruals F. Cash Outflows from Other Expenses 1. Other Expenses (-) Provision Expenses G. Changes In Working Capital 1. Decrease/Increase In Other Receivables (+,-) 2. Decrease/Increase In Other Current Assets (+, -) 3. Decrease/Increase In Other Current Liabilities (-, +) 4. Decrease/Increase In Tax Payables And Social Security Payables H. Tax Payments (-) 1. Prepaid Taxes Of Current Period (+) 2. Tax Payments Related With Previous Period(+) II. Cash Flows From Investment Activities A. Cash Inflow From Investment Activities (+) 1. Cash receipts from sales of financial assets (+) 2. Cash receipts from sales of property,(+) 3. Cash receipts from sales of intangible assets (+) B. Cash Outflows From Investment Activities (-) 1. Cash Payments for Acquire of Financial Assets (-) 2. Cash Payments for Acquire of Property (-) 3. Cash Payments for Acquire of Intangible Assets

CASH FLOW STATEMENT (INDIRECT METHOD) 1.1.20X1- 31.12.20X1 III. Cash Flows from Financing Activities A. Cash Inflow from Financing Activities 1. Increase in Short term Barrowings (from issuing debentures, loans, notes, bonds) 2. Increase in Long Term Borrowings (from issuing debentures, loans, notes, bonds) 3. Cash Paid-in Capital Increase B. Cash Outflow from Financing Activities 1. Decrease in Short term Barrowings 2. Decrease in Long Term Borrowings 3. Dividend Payments Decrease in Cash (I+II+III) Beginning Cash Ending Cash

CASH FLOW STATEMENT (INDIRECT METHOD) 1.1.20X1- 31.12.20X1 I. Cash Flow From Operating Activities A. Profit/Loss Of Current Period 1. Net Profit/Loss Of Current Period (+) 2. Tax Provisions (+) B. Subtractions From Profit (Income Items Which Are Not Caused Cash Inflow) 1.Income Accruals (-) 2. Reversal Of Provisions (-) 3. Tangible Assets Sales Profit (-) 4. Deferred Income Related With Current Period (-) C. Additions To Profit (Expense Items Which Are Not Caused Cash Outflow) 1. Depreciation And Amortization Costs 2. Prepaid Expenses Related With Current Period 3. Expense Accruals 4. Provisions For Retirement Benefits 4. Provision Expenses D. Changes In Working Capital 1. Decrease/Increase In Trade Receivables (+,-) 2. Decrease/Increase In Other Receivables (+,-) 3. Decrease/Increase In Inventories (+, -) 4. Decrease/Increase In Other Current Assets (+, -) 5. Decrease/Increase In Trade Payables (-,+) 6. Decrease/Increase In Other Current Liabilities (-, +) 7. Decrease/Increase In Tax Payables And Social Security Payables E. Tax Payments (-) 1. Prepaid Taxes Of Current Period (+) 2. Tax Payments Related With Previous Period(+)

CASH FLOW STATEMENT 1.1.20X1- 31.12.20X1 II. Cash Flows From Investment Activities A. Cash Inflow From Investment Activities (+) 1. Cash receipts from sales of financial assets (+) 2. Cash receipts from sales of property,(+) 3. Cash receipts from sales of intangible assets (+) B. Cash Outflows From Investment Activities (-) 1. Cash Payments for Acquire of Financial Assets (-) 2. Cash Payments for Acquire of Property (-) 3. Cash Payments for Acquire of Intangible Assets III. Cash Flows from Financing Activities A. Cash Inflow from Financing Activities 1. Increase in Short term Barrowings (from issuing debentures, loans, notes, bonds) 2. Increase in Long Term Borrowings (from issuing debentures, loans, notes, bonds) 3. Cash Paid-in Capital Increase B. Cash Outflow from Financing Activities 1. Decrease in Short term Barrowings (principal payments of debentures, loans, notes, bonds) 2. Decrease in Long Term Borrowings (principal payments of debentures, loans, notes, bonds) 3. Dividend Payments Decrease in Cash (I+II+III) Beginning Cash Ending Cash

Statement of Cash Flows Case Study-1 Statement of Financial Position (Balance Sheet), Statement of Comprehensive Income (Income Statement) and additional notes of ABC Co. are given below: 20X1 20X2 Current Assets 21.725 26.065 Cash and Cash Equivalents 1.050 950 Financial Assets 1.440 840 Trade Payables 12.100 16.200 Inventories 7.000 8.000 Other Current Assets 135 75 Non-Current Assets 6.635 6.935 Tangible Assets 6.300 6.600 Lands 3.500 4.500 Buildings 1.500 Plant and Machinery 500 Vehicles 3.450 Acc. Dep. (2.700) (3.350) Intangible Assets 335 Total Assets 28.360 33.000 20X1 20X2 Current Liabilities 15.710 20.590 Loans 200 1.560 Trade Payables 13.000 17.160 Other Payables 1.960 1.670 Provisions 550 Tax Provisions Non-Current Assets 3.310 2.810 2.860 2.070 Other non-current assets 450 740 Equity 9.340 9.600 Paid in Capital 6.800 Retained Earnings 340 2.000 Net Profit 2.200 800 Total Liabilities and Equity 28.360 33.000

Statement of Cash Flows Case Study-1 20X2 20X1 Sales 115.000 115.750 Cost of Goods Sold (105.000) (100.700) Gross Profit 10.000 15.050 Operating Expenses (5.700) (7.200) Operating Profit 4.300 7.850 Other Income and Profit 1.600 1.100 Other Expense and Loss (400) Interest Costs (4.500) (6.200) Earnings Before Tax 1.000 2.750 Tax Provisions (200) (550) Net Profit 800 2.200 Additional Notes: ABC Co. paid 1.000 TL cash on the purchase of plant costing 1.000 TL and received 40 TL cash on the sale of vehicle costing 50 TL and accumulated depreciation 20TL. The amortization costs of the period is 670 TL. The cash dividend payment is 540 TL. Dividends had been paid from the net profit of previous period which amounts 2.200 TL. The rest of previous period’s net profit is reported in retained earnings. The cash payment of income taxes is 550 TL.

20X2 20X1 Cash Inflows Cash Outflows Current Assets 26.065 21.725 Cash and Cash Equivalents 950 1.050 100 Financial Assets 840 1.440 600 Trade Receivables 16.200 12.100 -4.100 Inventories 8.000 7.000 -1.000 Other Current Assets 75 135 60 Non-Current Assets 6.935 6.635 Tangible Assets 6.600 6.300 Lands 4.500 3.500 Buildings 1.500 Plant and Machinery 500 Vehicles 3.450 50 Acc. Depreciation -3.350 -2.700 650 Intangible Assets 335 Total Assets 33.000 28.360 Current Liabilities 20.590 15.710 Loans 1.560 200 1.360 Trade Payables 17.160 13.000 4.160 Other Payables 1.670 1.960 -290 Provisions Tax Provisions 550 350 2.810 3.310 2.070 2.860 -790 Other non-current assets 740 450 290 Equity 9.600 9.340 Paid in Capital 6.800 Retained Earnings 2.000 340 1.660 Net Profit 800 2.200 -1.400 Total Liabilities and Equity Total Cash Inflows/Outflows 8.580 -8.580

20X2 I. Cash Flows from Operating Activities 540 Cash flows from Profit 990 Earnings After Tax 800 Tax Provisions 200 Adjustments (10) Tangible Assets Sales Profit Expense Items Which are not Caused Cash Outflow (+) 670 Depreciation Costs Income Items Which are not Caused Cash Inflow (-) - Changes in Working Capital (570) Increase in Inventories (-) (1.000) Increase in Trade Receivables (-) (4.100) Increase in Trade Payables 4.160 Decrease in Financial Assets (+) 600 Decrease in Other Current Assets (+) 60 Decrease in Other Current Liabilities (-) (290) Tax Payments (550) II. Cash Flows From Investment Activities (960) - Land Purchase - Vehicle Sale 40 III. Cash Flows From Financing Activities 320 - Increase in Current Liabilities 1.360 - Decrease in Non-current Liabilities (790) - Increase in Other Non-current Liabilities 290 - Dividend Payments (540) Decrease in Cash (I+II+III) (100) Beginning Cash 1.050 Ending Cash 950

Statement of Cash Flows Case Study- 2 The comparative balance sheet and income statement of ABC Co. are as follows: BALANCE SHEET  20X1 20X2 Cash Inflow Cash Outflow Current Assets   Cash and Cash Equivalents 5 8 Trade Receivables 350 400 Inventories 500 692 Non-Current Assets Tangible Assets Land - 30 Machinery 200 300 Accumulated Depreciation (20) (50) Total Assets 1.035 1.380 Current Liabilities Financial Liabilities Trade Payables 215 280 Provisions (Provisions for Taxes) 40 90 Tax and Other Payables 25 Tax Payables 10 12 Social Security Funds Payables 15 18 Non-Current Liabilities 150 130 Provisions (Retirement Benefit Provisions) Equity Paid-in Capital Profit Reserves 100 Prior Year’s Profit (Retained Earnings) Net Profit of Current Period 210 Total Liabilities and Equity

Statement of Cash Flows Case Study-2 INCOME STATEMENT 20X2  Net Sales 1.500 Cost of Goods Sold (1.050) Gross Sales Profit 450 Operating Expenses (100) Operating Profit 350 Other Income - Other Expenses Financial Expenses (50) Profit/Loss of Current Period 300 Provisions for Tax (90) Net Profit of Current Period 210 Additional Notes The depreciation cost of current period is 30 TL. Tax rate is 30%. Company purchased land costed 30 TL and a new machinery costed 100 TL.  

BALANCE SHEET  20X1 20X2 Cash Inflow Cash Outflow Current Assets   Cash and Cash Equivalents 5 8 3 Trade Receivables 350 400 50 Inventories 500 692 192 Non-Current Assets Tangible Assets Land - 30 Machinery 200 300 100 Accumulated Depreciation (20) (50) 30  Total Assets 1.035 1.380 Current Liabilities Financial Liabilities Trade Payables 215 280 65 Provisions (Provisions for Taxes) 40 90 50  Tax and Other Payables 25 Tax Payables 10 12 2 Social Security Funds Payables 15 18 Non-Current Liabilities 150 130 20  Provisions (Retirement Benefit Provisions) Equity Paid-in Capital Profit Reserves Prior Year’s Profit (Retained Earnings) Net Profit of Current Period 210 Total Liabilities and Equity 395

20X2 I. Cash Flow From Operating Activities 123 A. Profit of Current Period(+) 300   B. Subtractions From Profit (Income Items Which Are Not Caused Cash Inflow) - C. Additions To Profit (Expense Items Which Are Not Caused Cash Outflow) 35 - Depreciation Cost 30 - Provisions for Retirement Benefits 5 D. Changes In Working Capital (+/-) (172) - Increase In Trade Receivables (-) (50) - Increase In Inventories (-) (192) - Increase In Trade Payables (+) 65 - Increase In Tax Payables And Social Security Payables E. Tax Payments (40) II. Cash Flows From Investment Activities (130) A. Cash Payments for Acquire of Property (-) Purchasing Land (30) Purchasing Machinery (100) III. Cash Flows from Financing Activities 10 A. Increase in Short term Barrowings B. Decrease in Long term Barrowings (Payments) (20) Decrease in Cash (I+II+III) 3 Beginning Cash Ending Cash 8