Cash Flow Statement

Avinash Malladhi

Definitions
The cash flow statement is concerned with the flow of cash in and out of the business. Itshows how changes inbalance sheetaccounts and income affectcash and cash equivalents, and brea s the anal!sis down to o"erating, investing, and financing activities.

#tems
Operating Activities : It includes the cash flow related to the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product. Investing Activities : It includes the activities related to purchase and selling of assets , loans, mergers and acquisition and from short term or long term debt. inancing Activities :Financing activities include the inflow of cash

frominvestorssuch asban sandshareholders, as well as the outflow of cash to shareholders asdividendsas the com"an! generates income.

Methods
Direct Method The direct method for creating a cash flow statement re"orts ma$or classes of gross cash recei"ts and "a!ments.
#ndirect Method The indirect method uses net%income as a starting "oint, ma es ad$ustments for all transactions for non% cash items, then ad$usts from all cash% based transactions.

&'am"les
Operating Activities : !eceipts and payments Investing Activities : "urchase or sale of Asset inancing Activities : #ividends paid , repurchase of company$s stoc%

()#
A cash flow statement analyses the cash position It clearly indicates if there are e&cess drawings by the partners Inventory position is more clearly visible, letting receivables grow or paying suppliers more quic%ly. 'apital purchases show up as an e&pense. (ffect of )an% loan on cash reserves is also clearly visible