STATEMENT OF CASH FLOW

A statement reporting the impact of a

firms operating, investing, and financing
activities on cash flows over accounting
period.
 A statement reporting the impact of a
firms operating, investing, and financing
activities on cash flows over accounting
period.
Operating activities
include the net income, depreciation,
amortization and changes in working capital
other than cash and short term debt.
Depreciation
The charge to reflect the cost of tangible
assets (plant and equipment) used up in the
production process. It is not a cash outlay

Amortization
The noncash charge similar to depreciation
except that it is use to write off the costs of
intangible assets (patents, copyrights, trademarks
and goodwill.)
Working Capital (WC)
also known as net working capital, or working capital
ratio, is a measure of both a company's efficiency and
its short-term financial health. The working capital
ratio is calculated as:

Working capital = current assets current liabilities

If working company is able to pay off its

short term liabilities
capital is +
If working company is currently unable to meet
its short term liabilities with its
capital is - current assets
 Net Income

+ Depreciation and amortization

+ Decreases in current assets

- Increases in current assets

+ Increases in current liabilities

- Decrease in current liabilities

 Investing activities
include purchases and sales of fixed assets
 Investing activities
include purchases and sales of fixed assets

FIXED ASSETS
purchasing or acquisition cash is reduced
selling cash is increased
 Financing activities
include raising cash by issuing short term debt, long
term debt, or stock, or using cash to pay dividends or
to buy back outstanding stocks or bonds

SECURITY TRANSACTIONS AND DIVIDEND

PAYMENTS
issuance of stocks or bonds increase in cash
payment of outstanding debts
buying back of stocks decrease in
payment of dividends cash
Operating cash Operating cash
flows flows

Current liabilities
Current assets
Long-term
liabilities Financing cash
Long-term assets Stockholders flows
Equity

Investing cash
flows
Its main advantages are as follows:

(i) Planning and Co-ordination of Financial Operations. Cash Flow

Statement is useful is evaluating Financial policies and current cash
position. Since cash is the basis for carrying on operations, the Cash Flow
Statement prepared on an estimated basis for the next accounting period
will enable the management to plan and co-ordinate the financial
operations probably. The management comes to know how much cash is
needed in the future and at what time and how can it be arranged-how
much internally and how much from outside. It is especially useful in
preparing cash budgets.

(ii) A Control Device. Cash Flow statement is also a control device for the
management. A comparison of cash flow statement of previous year with
the budget for that year would indicate to what extent the resources of the
enterprise were raised an applied according to the plan. Thus a
comparison of original forecast with actual results may highlights trends of
movement that might otherwise go undetected.
(iii) Useful to internal Financial Management. Since it gives a clear
picture of cash inflow from operations (and not income flow of operation),
it is, therefore, very useful to internal financial management in
considering the possibility of retiring ling-term debts, in planning
replacement of plant facilities or in formulating dividend policies.

(iv) Profit and Cash Positions. It enables the management to account

for situation when business has earned huge profits yet run without
money or when it has suffered a loss and still has plenty of money at the
bank.

(v) Short-term Financial Decisions. Cash Flow Statement helps the

management in taking short-term financial decisions. Suppose, if firm
wants to know its state of solvency after one month from to date, it is
possible only from Cash Flow analysis and not from Fund Flow
Statement. Shorter the period, greater is the importance of Cash Flow
Statement.
 CASH FLOW STATEMENT
EXAMPLE

You are the owner of a garment company and was wondering how cash
flowed on your operations. Your Accountant gave you the January and
December balance.

Assets JANUARY DECEMBER

Cash 62,000.00 38,000.00
Accounts Receivable 73,000.00 108,000.00
Inventories 136,000.00 222,000.00
Prepaid Expenses 41,000.00 13,000.00
Current Assets 312,000.00 381,000.00
Equipment 236,000.00 486,000.00
Less: Depreciation 73,000.00 121,000.00
Net 163,000.00 365,000.00
TOTAL 475,000.00 746,000.00
Liabilities and Stockholders Equity
Accounts Payable 76,000.00 85,000.00
Other current liabilities 32,000.00 56,000.00
Bonds Payable 56,000.00 20,000.00
Long-term bank borrowing 35,000.00 89,000.00
Common stock 125,000.00 203,000.00
Retained Earnings 151,000.00 293,000.00
TOTAL 475,000.00 746,000.00
Your also paid dividends of Php51, 000. With this,
you started to do a cash flow statement to get on
with the analysis. How would the cash flow
statement look like?
 CASH FLOW STATEMENT
EXAMPLE

Assets January December

Increase/ (Decrease)
Cash 62,000.00 38,000.00 (24,000.00)
Accounts Receivable 73,000.00 108,000.00 35,000.00
Inventories 136,000.00 222,000.00 86,000.00
Prepaid Expenses 41,000.00 13,000.00 (28,000.00)
Current Assets 312,000.00 381,000.00 69,000.00
Equipment 236,000.00 486,000.00 250,000.00
Less: Depreciation 73,000.00 121,000.00 48,000.00
Net, Equipment 163,000.00 365,000.00 202,000.00
TOTAL 475,000.00 746,000.00 271,000.00
Liabilities and
Stockholders Equity
Accounts Payable 76,000.00 85,000.00 9,000.00
Other current liabilities 32,000.00 56,000.00 24,000.00
Bonds Payable 56,000.00 20,000.00 (36,000.00)
Long-term bank borrowing 35,000.00 89,000.00 54,000.00
Common stock 125,000.00 203,000.00 78,000.00
Retained Earnings 151,000.00 293,000.00 142,000.00
TOTAL 475,000.00 746,000.00 271,000.00
 CASH FLOW STATEMENT
EXAMPLE

Net income = ?!?!

 CASH FLOW STATEMENT
EXAMPLE

Recall:

R/E (end) = R/E (beg) + net income dividends

 CASH FLOW STATEMENT
EXAMPLE

Recall:

R/E (end) = R/E (beg) + net income dividends

293,000 = 151,000 + net income 51,000

 CASH FLOW STATEMENT
EXAMPLE

Recall:

R/E (end) = R/E (beg) + net income dividends

293,000 = 151,000 + net income 51,000

Net income = 193,000

 CASH FLOW STATEMENT
EXAMPLE
Operating
Net Income 193,000.00
Depreciation 48,000.00 241,000.00
Accounts Receivable (35,000.00)
Inventories (86,000.00)
Prepaid Expenses 28,000.00
Accounts Payable 9,000.00
Other Current Liabilities 24,000.00 (60,000.00)

Investing
Equipment (250,000.00) (250,000.00)

Financing
Bonds Payable (36,000.00)
LT Bank Borrowing 54,000.00
Common Stock 78,000.00
Dividends (51,000.00) 45,000.00
Net Decrease in Cash (24,000.00)
Cash and Cash Equivalents (Jan.1) 62,000.00
Cash and Cash Equivalents (Dec.31) 38,000.00
 CASH FLOW STATEMENT
EXAMPLE

Assets January December

Increase/ (Decrease)
Cash 62,000.00 38,000.00 (24,000.00)
Accounts Receivable 73,000.00 108,000.00 35,000.00
Inventories 136,000.00 222,000.00 86,000.00
Prepaid Expenses 41,000.00 13,000.00 (28,000.00)
Current Assets 312,000.00 381,000.00 69,000.00
Equipment 236,000.00 486,000.00 250,000.00
Less: Depreciation 73,000.00 121,000.00 48,000.00
Net, Equipment 163,000.00 365,000.00 202,000.00
TOTAL 475,000.00 746,000.00 271,000.00
Liabilities and
Stockholders Equity
Accounts Payable 76,000.00 85,000.00 9,000.00
Other current liabilities 32,000.00 56,000.00 24,000.00
Bonds Payable 56,000.00 20,000.00 (36,000.00)
Long-term bank borrowing 35,000.00 89,000.00 54,000.00
Common stock 125,000.00 203,000.00 78,000.00
Retained Earnings 151,000.00 293,000.00 142,000.00
TOTAL 475,000.00 746,000.00 271,000.00
 CASH FLOW STATEMENT
EXAMPLE

You are the owner of a garment company and was wondering how cash
flowed on your operations. Your Accountant gave you the January and
December balance sheets and relayed that you had a net profit of $ 193,000
for the year.
Assets JANUARY DECEMBER
Cash 62,000.00 38,000.00
Accounts Receivable 73,000.00 108,000.00
Inventories 136,000.00 222,000.00
Prepaid Expenses 41,000.00 13,000.00
Current Assets 312,000.00 381,000.00
Equipment 236,000.00 486,000.00
Less: Depreciation 73,000.00 121,000.00
Net, Equipment 163,000.00 365,000.00
TOTAL 475,000.00 746,000.00
Liabilities and Stockholders Equity
Accounts Payable 76,000.00 85,000.00
Other current liabilities 32,000.00 56,000.00
Bonds Payable 56,000.00 20,000.00
Long-term bank borrowing 35,000.00 89,000.00
Common stock 125,000.00 203,000.00
Retained Earnings 151,000.00 293,000.00
TOTAL 475,000.00 746,000.00
 CASH FLOW STATEMENT
EXAMPLE

You are the owner of a garment company and was wondering how cash
flowed on your operations. Your Accountant gave you the January and
December balance sheets and relayed that you had a net profit of $ 193,000
for the year.
Assets JANUARY DECEMBER
Cash 62,000.00 38,000.00
Accounts Receivable 73,000.00 108,000.00
Inventories 136,000.00 222,000.00
Prepaid Expenses 41,000.00 13,000.00
Current Assets 312,000.00 381,000.00

Net, Equipment 163,000.00 365,000.00

TOTAL 475,000.00 746,000.00
Liabilities and Stockholders Equity
Accounts Payable 76,000.00 85,000.00
Other current liabilities 32,000.00 56,000.00
Bonds Payable 56,000.00 20,000.00
Long-term bank borrowing 35,000.00 89,000.00
Common stock 125,000.00 203,000.00
Retained Earnings 151,000.00 293,000.00
TOTAL 475,000.00 746,000.00
 CASH FLOW STATEMENT
(FIXED ASSETS, NET)

Fixed asset (end / new)

Residual
+ depreciation

Use of cash (e.g. acquisition)

- Fixed asset (beg / old)

Source of cash (e.g. selling)
The following are the ABC Companys year-end balance sheets for December 31
for the past two years .
. 2009 2008
Income Tax Payable $ 8,130 $ 8,240
Plant and Equipment 54,600 51,400
Accumulated Depreciation 18,000 13,500
Accounts Payable 12,140 13,610
Inventory 14,280 12,430
Cash 16,400 17,250
Capital Stock 12,000 8,000
Accounts Receivable 18,920 16,480
Accrued Wages 7,320 7,890
Notes Payable 24,000 30,000
Prepaid Insurance 2,630 2,280
Retained Earnings 19,240 13,600
Short-term Bank Loans 6,000 5,000

Required: Cash Flow Statement

The following are the ABC Companys year-end balance sheets for
December 31 for the past two years . Prepare cash flow statement.
.
ACCOUNTS 2010 2009 Increase /
Decrease
Income Tax Payable $8,130 $8,240 ($110)
Plant and Equipment 54,600 51,400 $3,200
Accumulated Depreciation 18,000 13,500 $4,500
Accounts Payable 12,140 13,610 ($1,470)
Inventory 14,280 12,430 $1,850
Cash 16,400 17,250 ($850)
Capital Stock 12,000 8,000 $4,000
Accounts Receivable 18,920 16,480 $2,440
Accrued Wages 7,320 7,890 ($570)
Notes Payable 24,000 30,000 ($6,000)
Prepaid Insurance 2,630 2,280 $350
Retained Earnings 19,240 13,600 $5,640
Short-term Bank Loans 6,000 5,000 $1,000
 ITEM CHANGE
Cash -100
Accounts Receivable 700
Inventory -300
Gross Fixed Asset 900
Amortization 1000
Accounts Payable 300
Accruals -100
Long Term Debt -200
Net Income 600
Dividends 400

Required: Prepare Cash Flow Statement

 Financial statements for Mabini Construction Company are given 2009 and 2010
in summary form. The president of the company is considering expansion and would like
your views on the firms ability to generate funds.

Mabini Construction Company Mabini Construction Company

Income Statement for the Year 2011 Balance Sheet for Year 2010 - 2011
(in thousand) (in thousand)

Net sales 8,716 2010 2011

Cost of construction Cash 386 607
billed 5,552 Marketable securities 920 1,320

Operating expenses 1,085 Accounts receivable 1,472 1,890

Depreciation expense 232 Inventory 746 1,046

Interest expense 290 Plant and equipment (net) 3,762 3,816

Net income 1,557 Total assets 7,286 8,679

Accounts payable 856 831

Bank loans payable 482 643
Long-term notes payable 1,800 1,200
Common stock 2,500 3,700
Retained earnings 1,648 2,305
Total equities 7,286 8,679
The following financial statements are from Lucena Company in ($):

Dec. 31, 2010 Dec. 31, 2011

Cash 14,000 16,000
Accounts Receivable (net) 22,000 28,000
Inventories 65,000 55,000
Fixed Assets (net) 85,000 79,000

TOTAL ASSETS 186,000 178,000

Accounts Payable 30,000 15,000

Bonds Payable 60,000 75,000
Common Stock (par value of $10) 60,000 60,000
Retained Earnings 36,000 28,000

TOTAL L AND SE 186,000 178,000

INCOME STATEMENT FOR 2011

Sales 360000
Cost of Goods Sold 240000
Gross Margin 120000
Operating Expenses (including $20,000 of depreciation expense) 100000
Income before Taxes 20000
Income Taxes 8000
Income after Taxes 12000