1. 1 CASH FLOW STATEMENT Dr. Jatin Pancholi Email: email@jatinpancholi.com Website: http://www.jatinpancholi.com Dr. Jatin Pancholi has compiled and prepared this teaching note from various sources, as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The handling of a management situation requires personal guidance by a professional. To obtain copies, request permission to reproduce and to send feedback, please send email to email@jatinpancholi.com. Visit website http://www.jatinpancholi.com. Those wishing to co-author next edition of this handout are requested to contact via email.email@jatinpancholi.comhttp://www.jatinpancholi.com Perfection does not exist. To understand this is the triumph of human intelligence; to expect to possess it is the most dangerous kind of madness. - Alfred de Musset

2. 2 CASH FLOW STATEMENT CF Statement is a ‘flow’ statement. CFS indicates changes that took place between tow successive Balance Sheets. The statement of cash flows provides a thorough explanation of the changes that occurred in a firm’s cash balance during the entire accounting period.

3. 3 CFS… The statement of cash flows reports cash receipts and payments of a company during a given period for operating, financing, and investing activities. “Cash” includes cash and cash equivalents.

4. 4 Why CFS? Balance Sheet – P&L A/c – insufficient. It shows the relationship of net income to changes in cash balances. It reports past cash flows as an aid to: Predicting future cash flows Evaluating the way management generates and uses cash Determining a company’s ability to pay interest and dividends and to pay debts when they are due It identifies changes in the mix of productive assets.

5. 5 Why CFS?... The statement of cash flows, along with the income statement, explains why balance sheet items have changed during the period. Legal rules.

6. 6 Why CFS?… The relationship among the balance sheet, income statement, and statement of cash flows: Balance Sheet December 31, 19X1 Balance Sheet December 31, 19X1 Balance Sheet December 31, 19X0 Income Statement Statement of Cash Flows

7. 7 Activities Affecting Cash Operating activities - transactions that affect the income statement Investing activities - activities that involve (1) providing and collecting cash as a lender or as an owner of securities and (2) acquiring and disposing of plant, property, equipment, and other long-term productive assets

8. 8 Activities Affecting Cash... Financing activities - activities that include obtaining resources as a borrower or issuer of securities and repaying creditors and owners

9. 9 Operating Activities Cash inflows Cash Receipts from sale of goods/rendering of services Cash Received from royalties, fees, commission, etc. Other operating receipts Cash outflows Cash payments to suppliers for Goods/services Cash payments to employees Interest and taxes paid Other operating cash payments

10. 10 Investing Activities Cash inflows Sale of property, plant, and equipment Sale of securities that are not cash equivalents Receipt of loan repayments Cash outflows Purchase of property, plant, equipment Purchase of securities that are not cash equivalents Making loans

11. 11 Financing Activities Cash inflows Borrowing cash from creditors Issuing equity shares Issuing debt securities Cash outflows Repayment of amounts borrowed Repurchase of equity shares Payment of dividends***

12. 12 Thank You Happiness is a positive cash flow. (Fred Adler - Venture capitalist) Dr. Jatin Pancholi Email: email@jatinpancholi.com Website: http://www.jatinpancholi.com Dr. Jatin Pancholi has compiled and prepared this teaching note from various sources, as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The handling of a management situation requires personal guidance by a professional. To obtain copies, request permission to reproduce and to send feedback, please send email to email@jatinpancholi.com. Visit website http://www.jatinpancholi.com. Those wishing to co- author next edition of this handout are requested to contact via email.email@jatinpancholi.comhttp://www.jatinpancholi.com