1. Chapter 6: Cash Flow Analysis Spencer Ag Business - 2013 Developed by: Rick Swenson Montezuma High School Agricultural Department

2. The Cash Flow Statement: A cash flow summary is the actual result of money transactions during a given year. All items listed on a cash flow statement must have either been received in cash or paid in cash. There are no noncash items listed. Example: Depreciation and value of your labor.

3. Cash Flow Statement: Cash flow summary is future plan of all your money transactions that will take place in the next year. The cash flow summary is made in advance and is an estimate of: –money flowing into the business –money flowing out of the business The cash flow summary gives the business an idea of when possible shortages of cash may occur and an operating loan will be needed to cover short term debt costs.

4. Cash Flow Statement: A measure of the liquidity of a business. A measure of the ability of the business to meet all of its short term debt obligations.

5. Why Make a Cash Flow Statement? Decide what enterprises for next year How much will each enterprise produce What production techniques will I use What are the likely prices to be received for the products When will I market the products

6. Why Make a Cash Flow Statement? When will I be able to pay operating costs How much money will need to be borrowed in the form of an operating loan for the next year When will I need to borrow the money When will I be able to repay the loans

7. Advantages of a Cash Flow Statement: Shows when excess cash will be available Shows when cash shortages exist Allows the business to plan for loans Can combine business and personal income and expenses for a true picture Allows you to plan for purchases (capital)

8. Advantages of a Cash Flow Statement: Allows you to compare projections to actual occurrences throughout the year Allows the business to evaluate short term debt and repayment potential Idea of the business cash position through out the year

9. Disadvantages of a Cash Flow Statement: Requires a lot of time Working with projections which may not be accurate Borrowing rates may fluctuate Family expenses may vary Inventories change constantly Constant review and revision

10. Cash Flow Examples and Problems: Each student to begin working on cash flow statements and examples to gain a better understanding of cash flows and how it works. Each student to begin the analysis portion of the cash flow statement to identify credit obligations and cash balances. Each student is to analyze the cash flow statement and modify it to accommodate changes that will occur during the year.