12.8 analysis of the cash flow statement

12.8ANALYSIS OF THE CASH FLOW STATEMENT

Cash Flow Statement for the month ended 30 June 2015

$ $

Cash Flows from Operating Activities

Cash sales 50000

Receipts from debtors 10000

GST collected 5000

Cash purchases of stock (30000)

Advertising (3000)

Wages (14000)

Cleaning (3000)

GST paid (4000)

Net Cash Flow from Operating Activities

11000

Cash Flows from Investing Activities

Sale of office equipment 2000

Sale of furniture 4500

Purchase of computer (3000)

Purchase of vehicle (5500)

Net Cash Flow from Investing Activities

(2000)

Cash Flows from Financing Activities

Capital contributions 5000

Loan – NAB 15000

Drawings (10000)

Loan repayments (11000)

Net Cash Flow from Financing Activities

(1000)

Net increase (decrease) in cash 30300

Cash at start of period 2000

Cash at end of period 32300


$ $


Cash sales 50000


GST collected 5000


Advertising (3000)

Wages (14000)

Cleaning (3000)

GST paid (4000)


11000







(2000)



Loan – NAB 15000

Drawings (10000)



(1000)





$ $


Cash sales 50000


GST collected 5000


Advertising (3000)

Wages (14000)

Cleaning (3000)

GST paid (4000)


11000







(2000)



Loan – NAB 15000

Drawings (10000)



(1000)





$ $


Cash sales 50000


GST collected 5000


Advertising (3000)

Wages (14000)

Cleaning (3000)

GST paid (4000)


11000







(2000)



Loan – NAB 15000

Drawings (10000)



(1000)





$ $


Cash sales 50000


GST collected 5000


Advertising (3000)

Wages (14000)

Cleaning (3000)

GST paid (4000)


11000







(2000)



Loan – NAB 15000

Drawings (10000)



(1000)




Operating Activities

Investing Activities

Financing Activities

Closing Section

© Michael Allison, Trinity Grammar School.Author’s permission required for external use

12.8 ANALYSIS OF THE CASH FLOW STATEMENT

Cash Balance

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Operating

Investing

Financing

Cash Inflows

Money comes into the

business from 3 sources

Cash comes in from selling goods and services:

• Cash sales

• Debtor collections

• GST received

Cash comes in from selling Non-Current Assets:

• Property

• Vehicles

• Equipment

Cash comes in from

• Borrowings (loans)

• Capital contributions

Cash is spent on running the business on a daily basis • Wages• Creditor

payments• Stock

purchases• Expenses paid

Cash is spent on buying Non-Current Assets • Property

• Vehicles

• Equipment

Cash is spent on

• Loan repayments

• Drawings

Cash Outflows

Money leaves the business in

3 ways


Net Cash Inflow

Net Cash Outflow

Operating Activities

Investing Activities

Financing Activities

The business has been able to generate net cash from its day-to-day operations

This can be spent on:• Buying non-

current assets• Loan

repayments• Drawings

The business can’t generate net cash from its day-to-day operations

It will have to get money from:• Selling non-

current assets• Borrowing

money• Capital

contributions

The business has generated cash by selling non-current assets

This is good because it may have sold unproductive assets

But this is also bad as it is not sustainable because:• The assets sold

won’t generate future cash

• The firm will run out of assets to sell

The business has spent money on non-current assets

This is good because these will be used to generate future revenues and cash

The business has raised money from:• Borrowing from

banks• Capital

contributions from the owner(s)

This is not sustainable because:• The firm has

increased its debt

• Loans must be repaid with interest

• The owner(s) can’t continue to make capital contributions

The business has spent money on:• Repaying loans

to the bank• Drawings to the

owner(s)

This is good because:• The firm has

reduced its debt• Interest

expenses will be lower

• The owner’s have made money from the business



Cash Balance

Operating

Investing

Financing

Operating

Investing

Financing

OPERATING ACTIVITIES

Ideally…

INVESTINGACTIVITIES

FINANCINGACTIVITIES



Cash Balance

Operating

Investing

Financing

Operating

Investing

Financing


Situation #1…

INVESTINGACTIVITIES

FINANCINGACTIVITIES

100,000

(60,000)

(20,000)



Cash Balance

Operating

Investing

Financing

Operating

Investing

Financing


INVESTINGACTIVITIES

FINANCINGACTIVITIES

100,000

(130,000)

40,000

Situation #2…



Cash Balance

Operating

Investing

Financing

Operating

Investing

Financing


FINANCINGACTIVITIES

INVESTIINGACTIVITIES

100,000

(150,000)

60,000

Situation #3…



Cash Balance

Operating

Investing

Financing

Operating

Investing

Financing


FINANCINGACTIVITIES

INVESTIINGACTIVITIES

(50,000)

30,000

30,000

Situation #4…




1994 1995 1996 1997 1998 1999 2000 -

100

200

300

400

500

600

700

800

900

1,000

440 489 493

105

703

893

979 Enron Net Profit ($m)

Went bankrupt in 2001…


1996 1997 1998 1999 2000

-6,000

-4,000

-2,000

-

2,000

4,000

6,000

884 211

1,640 1,228

4,779

-1,074

-2,146

-3,965 -3,507

-4,264

331

1,849 2,266 2,456

571

Enron – Net Cash Flows ($m)

Operating Activities ($m)

Investing Ac-tivities ($m)

Financing Ac-tivities ($m)


© Michael Allison, Trinity Grammar School.Author’s permission required for external use2001 2002 2003 2004 2005 2006 2007

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1,255 975

1,699

2,369

3,260

3,941 4,192

Lehman Brothers Net Profit ($m)




2005 2006 2007

-60,000

-40,000

-20,000

-

20,000

40,000

60,000

-12,205

-36,376

-45,595

-447 -792 -1,698

12,112

38,255

48,592

Lehman Brothers – Net Cash Flows ($m)






ABC Learning:

Founded by Eddie Groves

Grew from one childcare centre in 1988

At its peak, ABC Learning was opening up four new centres per week



2001 2002 2003 2004 2005 2006 2007 -

500

1,000

1,500

2,000

2,500

43 94 187

327

660

1,257

2,238

ABC Learning – No. of centres at year end



2001 2002 2003 2004 2005 2006 2007 -

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

3.3 6.8 12.1

21.4

52.3

81.0

143.1

ABC Learning – Net Profit ($m)




How could ABC Learning go broke in 2008 when its profi ts and cash were growing?

2005 2006 2007 -

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

52.3

81.0

143.1

45.7

88.0

123.1Net Profit ($m)

Net In-crease/ Decrease in Cash ($m)



2005 2006 2007

-2,000.0

-1,500.0

-1,000.0

-500.0

-

500.0

1,000.0

1,500.0

2,000.0

43.2 89.2 206.9

-454.0

-851.3

-1579.4

456.5

850.1

1495.6

ABC Learning – Net Cash Flows ($m)






TASK

In-class Homework

Ex12.7 XEx12.8 XEx12.9 XEx12.10 XCase study X

12.8 analysis of the cash flow statement

Education

cash flows

net cash flow

cash flow statement

cash purchases of stock

net increase decrease

sale of furniture

purchase of vehicle

loan repayments