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  • Cash Flow StatementSIMPLIFIED!

    Tolu AGUNBIADE19 March 2015

  • 1. What a cash flow statement is

    2. How to prepare a Cash Flow Statement

    3. What Your Cash Flow Statement says about your business

    Today, well learn:

  • What is a Cash Flow Statement?

  • and what is it used for?

  • Simply put, a cash flow statement is the

    movement of money in and out of your business.

  • A cash flow statement can answer the questions:

    Where did the money come from?and

    Where did it go?

  • The primary purpose is to provide information

    regarding a companys cash receipts and cash payments

  • It can be used to assess the timing, amount and predictability of future

    cash flow.

  • How is the Cash Flow Statement Different from The Other Financial Statements?

  • The Cash Flow Statement complements the income

    statement and Balance Sheet.

  • It is designed to convert the accrual basis of accounting

    used in the income statement and balance sheet back to a

    cash basis.

  • While the income statement tells you if you are making a profit or a loss and

    by how much.

  • The Balance Sheet tells you what you

    own, what you owe and who youve gotten

    money from.

  • They are both prepared on accrual basis.

  • The Cash Flow statement is the one financial statement prepared strictly on a cash basis and lets you know how much

    liquid cash your company is making.

  • As the number of corporate failures has risen, there is one line that bankers continue to echo: it is not a fall in profits

    that leads to failure, but a lack of cash.

    Source: The Financial Times

  • In too many situations, companies and their investors have been focused on profits, but in an environment where

    liquidity is tight and confidence thin, cash is king.

    Source: The Financial Times

  • What Makes Up aCash Flow Statement?

  • Part 1: Operating Activities

  • Operating activities in cash flow arise from normal

    business operations such as revenues and cash operating

    expenses after taxes.

  • Operating activities that create cash outflows include payments

    by suppliers, payment to employees, interest payments, and payment of income taxes.

  • Cash inflow (+) Payment for services rendered Payment from customers

    Cash outflow (-) Payments to suppliers Payments to employees Payments to government Payments to lenders Payments for other expenses

  • Part 2: Investing Activities

  • Investing activities involve buying and

    selling of current and fixed assets.

  • Cash inflow (+) Sale of property, plant and equipment Sale of debt or equity securities (other

    entities) Collection of principal on loans to other

    entities

    Cash outflow (-) Purchase of property, plant and

    equipment Purchase of debt or equity securities

    (other entities) Lending to other entities

  • Part 3: Financing Activities

  • Financing activities include borrowing and repaying

    money, issuing stock (equity) and paying dividends

  • For example: If you borrow funds to purchase equipment or pay off a loan, the cash flow statement will

    enable you to determine how much cash was either generated or used as

    a result of those transactions

  • How to Prepare a Cash Flow Statement

  • 1. There will be a starting balance of cash at the beginning of each period

    2. You will have increases or decreases in cash via operations; the company made or lost money on the core business

    3. The company will use cash throughout the year to pay for things i.e. new assets

    4. Some companies may choose to raise additional cash throughout the year

  • + Cash Flows from Operating Activities

    + Cash Flows from Investing Activities

    + Cash Flows from Financing Activities

    = Increase OR Decrease in Cash (Ending)

    + Beginning Cash Balance

    = Ending Cash Balance

  • How to Analyze a Cash Flow Statement

  • When analyzing cash flow, the first place to look is the cash flow for operating activities

  • A large increase in use in cash may be positive as it indicates a large booking or deal has occurred for

    which payment is expected

  • A lack of investing activities, which is few purchases of new equipment or other assets, may

    indicate stagnant growth.

  • As a company expands, financing activities will become increasingly important.

  • It will tell outsiders how the company has grown and the

    financial strategies of management.

  • What do you do when you have a

    negative cash flow?

  • Make an effort to increase sales!

  • Try and collect payment from customers more quickly. This can help

    you avoid long gaps and avoid transactions dragging on.

  • Attempt to reduce monthly expenditure. Buy supplies in bulk to get a discount, buy from a more competitively priced supplier,

    rent smaller premises, switch utility companies to reduce monthly outgoings

    anything!

  • Thank You