Cash Flow

Statement
 Cash Flow Statement
(CFS)
measures how well a company manages its
cash position, meaning how well the company
generates cash to pay its debt obligations and
fund its operating expenses.
 The Structure of the CFS

The main components of the cash flow

statement are:

•Cash from operating activities

•Cash from investing activities
•Cash from financing activities
Operating Activities:

These are the principal revenue-producing

activities of the entity; any cash flows
from current assets and current liabilities.
Examples of operating activities are cash
received and disbursed for product sales,
royalties, commissions, fines, lawsuits,
supplier and lender invoices, and payroll.
 Investing Activities:

These constitute payments made to acquire

long-term assets, as well as cash received
from their sale.

Examples of investing activities are the purchase of fixed assets and

the purchase or sale of securities issued by other entities.
Financing Activities:

These constitute activities that will alter the

equity or borrowings of a business.

Examples are the sale of company shares, the repurchase

of shares, and dividend payments.
 How to Use a Cash Flow
Statement
The CFS allows investors to understand how
a company's operations are running, where
its money is coming from, and how
money is being spent.

.
 2 Method: Direct vs Indirect
The direct method requires an organization to
present cash flow information that is directly associated
with the items triggering cash flows, such as:

•Cash collected from customers

•Interest and dividends received
•Cash paid to employees
•Cash paid to suppliers
•Interest paid
•Income taxes paid
 2 Method: Direct vs Indirect
Indirect method- the accounting line items such as
net income, depreciation, etc. are used to arrive at
cash flow. (Widely and preferred method)

•Depreciation and amortization

•Provision for losses on accounts receivable
•Gain or loss on sale of assets
•Change in receivables
•Change in inventory
•Change in payables
See Sample Business Plan
(Financial Plan)