Cash Flow Statement

It is a statement depicting change in cash

position from one period to another.

It is useful to understand
a. the ability of an enterprise to generate
cash and cash equivalents,
b. the needs of the enterprise to utilize
those cash flows
 Cash Flow Statement
Definitions:
1. Cash comprises cash on hand and
demand deposits with banks
2. Cash equivalents are short terms,
highly liquid investments that are
readily convertible into known amounts
of cash and which are subject to an
insignificant risk o changes in value
 Cash Flow Statement
Definitions…:
3. Cash flows are inflows and outflows of
cash and cash equivalents
4. Operating activities are the principal
revenue-producing activities of the
enterprise and other activities that are
not investing or financing activities
 Cash Flow Statement
Definitions…:
5. Investing activities are the acquisition and
disposal of long –term assets and other
investments not included in cash equivalents.
6. Financing activities are activities that result in
changes in the size and composition of the
owner's capital (including preference share
capital in the case of a coy ) and borrowings of
the enterprise
 Cash Flow Statement
Cash flows from operating profit

1. Adjust P&L a/c for non-cash items such as :

depreciation
amortization of intangible assets
loss on sale of fixed assets
gain on sale of fixed assets
creation of reserves
 Cash Flow Statement
Cash flows from operating profit

Step: 2. Adjust for changes in CA and CL

+ Decrease in CA
+ Increase in CL
Adj Net profit - Increase in CA
- Decrease in CL
 Cash Flow Statement
Cash flows from Investing activities
a. Increase in assets is outflow
b. Decrease in assets in inflow

Cash flows from Financing activities:

a. Increase in liabilities is inflow
b. Decrease in liabilities is outflow