Cash Flow Statement for the year ended December 31, 2010

Statement of cash flows: Statement of cash flows is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. It generally takes into account increase or decrease in cash during the accounting period. Statement of cash flows assists investors, creditors and others in assessing some factors like the companys ability to generate positive cash flows in some future period, to pay dividends and to find out cash and noncash transactions. The statement of cash flows is classified in three major categories:

Operating Activities:
This shows the cash effects of revenue and expense transaction. It includes the cash effects of those transactions

reported in the continuing operations section of the income statement.

Investing Activities:
Investing activities present the cash effects of transactions involving plant assets, intangible assets and investment.

Financing Activities:
Financing activities include the inflow of cash

from investors as well as the outflow of cash to shareholders as dividends as the company generates income.

Q1- Identify the method used on the statement of cash flows?

ICI Pakistan is using the indirect method in statement of cash flows. (The indirect method uses net-income as a starting point, makes adjustments for all transactions for non-cash items, then adjusts from all cash-based transactions. An increase in an asset account is subtracted for net income, and an increase in a liability account is added back to net income)

Q2- Identify the three sections of the statement and relate to the balance sheet and income statement?
The net cash flow from operating activities equals to 2,334,428. Operating activities calculation started from income before taxation (3,731,516) which was calculated from the income statement. Cash flow from operating

activities also show the change in Long-Term loans and long-term deposits and prepayments which were calculated from the balance sheet. Amount of property, plant and equipment is listed in the balance sheet, non-current assets section. Whereas the profit gained from disposed of property, plant and equipment are listed in the statement of cash flows. Dividends paid mentioned in the statement of cash flows are coming from the stockholders equity portion of the balance sheet which is linking both of the financial statements. Value of dividends paid in cash flows statement (1,388,027) is the same as of paid-up capital (1,388,027) in the balance sheet.

Q3- Identify that are the companys cash flows from operations more than or less than net income?
Companys cash flow from operating income in 2010 was 2,334,428. Whereas companys net income in 2010 was 2,428,826.

As the companys net income is more than the companys cash flow from operating income, the company is spending less in their operations and net income is high.

Q4- identify that is the company expanding through investing activities?

Net cash used in financing activities in 2010 was 752,830 and in 2009, cash used was 938,043. As the investment has decreased over the year, so the company has shown a contraction rather than expansion. In the last year, there was more expansion shown through operating activities.

Q5- Identify the most important source of financing activities?

The most important source of financing activities in statement of cash flows for ICI is Dividends Paid.

Q6- Overall, has cash increased or decreased over the year?

Net cash generated from operating activities Plus: Net cash used in investing activities Plus: Net cash used in financing activities 2,334,428 (752,830) (1,388,027) -----------------Net increase in cash and cash equivalents 193,571 -----------------Plus: Cash and cash equivalents at January 1 4,468,251 -----------------Cash and cash equivalents at December 31 4,661,822 So overall the cash has increased over the year.