1. Managing Finance and Budgets Seminar 6

2. Seminar 6 - Activities During this seminar we will:  Review the key concepts and ideas of Cash Flows  Review Chapter 6 of the set book  Review the Cash Flow Activity  (If time) Examine M & A Exercise 6.7

3. Some Starting Points  Explain the difference between Cash and Profit.  Explain what is meant by the following:  Operating Activities  Returns from Investment  Servicing of Finances  Taxation  Capital Expenditure  Equity Dividends  Liquid Resources

4. Equity dividends paid Financing Capital expenditure Returns from investment and servicing of finance Taxation Management of liquid resources Operating activities Cash balance Elements of of the cash flow statement: Inflows and Outflows

5. The Cash-Flow Statement 1  Describe the standard layout of the Cash-Flow Statement.

6. plus or minus equals plus or minus Increase or decrease in cash over the period Net cash flow from operating activities Returns from investment and servicing of finance Taxation Capital expenditure Equity dividends paid Management of liquid resource Financing Standard layout of the cash flow statement

7. The Cash-Flow Activity  The Cash Flow Activity Spreadsheet describes one month in the life of ACME Paper Supplies. You are asked to use the information given to construct a Balance Sheet, a Profit & Loss Account and a Cash Flow Statement.  One of the Important elements here is to ensure that all of your statements agree.

10. This panel shows the effect of each transaction on the Balance Sheet.

11. The February Balance Sheet has been amended as a result of the transactions.

12. This panel shows the effect of each transaction on the Profit & Loss Account

13. The February Profit and Loss account has been constructed from the information in the previous slide. Compare Balance Sheets (Jan/Feb) (Retained Profit) Compare Balance Sheets (Jan/Feb) (Retained Profit)

14. The Cash-Flow Activity P & L v Balance Sheet The Balance Sheet shows:  January Retained profit:£56,000  February Retained profit:£60,500 This is an increase of £4,500 The P & L Account Shows: February Surplus:£4,500 The Profit Agrees

15. This panel shows the effect of each transactio n on the Cash Flow

16. The February Cash Flow has been constructed from the information on the previous slide. Compare increase in Bank on Balance Sheets (Jan to Feb) Tax demanded, but not paid!

17. The Cash-Flow Activity Cash Flow v Balance Sheet The Balance Sheet shows:  January Bank Balance:£10,000  February Bank Balance:£19,500 This is an increase of £9,500 The Cash Flow Statement shows: February Cash Inflow: £9,500 The Cash Agrees

18. Final Check  For the final part of this activity, we will deduce the Net Cash Inflow from Operating Activities, via the indirect method.

19. The Cash-Flow Statement 2  State what is meant by the direct and indirect methods of deducing the Net Cash-Flow from the Operating Activities, explaining briefly the difference between them.  For the Indirect method of calculating the net cash- flow, state the list of items, taken in order, that you would need to include in your calculations.  Cash Flow Activity Spreadsheet

20. plus plus or minus equals plus or minus Net cash flow from operating activities Net operating profit Depreciation expense Increase (minus) or decrease (plus) in stock Increase (minus) or decrease (plus) in debtors Increase (plus) or decrease (minus) in creditors The indirect method of deducing the net cash flow from the operating activities

21. The Net Cash Flow from Operating Activities has been calculated from the information in the 2 Balance Sheets and the P & L Account. Compare Cash Flow (1 st item) Agrees

22. Summarising…  Describe the relationship(s) between:  The Balance Sheet  The Cash-Flow Statement  The Profit & Loss Account

23. Balance sheet at the start of the accounting period Owner’s claim Cash Balance sheet at the end of the accounting period Owner’s claim Cash Cash flow statement Profit and loss account The relationship between the balance sheet, the profit and loss account and the cash flow statement