CASH FLOW STATEMENT

Project report submitted to

ISC BOARD, NEW DELHI.
For the partial fulfillment of the requirement for the award
Of

“XII” GRADE
Submitted by
S.SANJAY
Under the guidance of

Mr.M.SARAVANAN M.Com,B.Ed
Accounts Teacher

SDR SCHOOL
Affiliated to the council of Indian School Certificate
Examination
Code No: TN068/2012
Korampallam post,
Thoothukudi – 628101, Tamilnadu
2022 – 2023

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Mr.M.Saravanan SDR SCHOOL
Accounts Teacher Korampallam,
Thoothukudi – 628101,
Tamilnadu

CERTIFICATE
This is to certify that the project entitled “CASH FLOW
STATEMENT” is an original work independently done by S.SANJAY,
GRADE -“XII”, SDR School, Korampallam, Thoothukudi during the
academic year 2022-2023. This work has not been submitted
anywhere for the award of any other grade.

Signature of the Principal Signature of the Guide

External examiner

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S.SANJAY
GRADE “XII”
SDR SCHOOL,
KORAMPALLAM , THOOTHUKUDI

DECLARATION
I Hereby declare the project entitled “CASH FLOW STATEMENT”
has been independently carried out by me as a student of SDR
School, Korampallam, Thoothukudi in partial fulfillment for the
award of the GRADE-“XII” under the guidance of Mr.M.Saravanan
M.Com,B.Ed., Accountancy teacher. I further declare this work has
not been submitted previously formed basis, for the award of any
grade or any similar title.

Place:Thoothukudi Signature of the candidate

Date:

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 ACKNOWLEDGEMENT

This project owes much to the help and support of many

people, all of whom have contributed in different ways. First
of all I am Profoundly grateful and thankful to the lord
Almighty whose boundless grace has enabled me to succeed
in this endeavor. I would like to express my sincere gratitude
and appreciation to my guide Mr.M.SARAVANAN M.Com,B.Ed,
(Accounts Teacher)and my beloved parents for their valuable
guidance and invaluable suggestions and consistent support
that made it possible for me to finish the work. I would like to
acknowledge my deed gratitude to Mrs.R.VIJAISRI VANITHA,
M.A,B.Ed., PRINCIPAL, SDR School, Thoothukudi who has
support me throughout my research career with her patience
and knowledge. I wish to express my profound thanks to
Mrs. ARTHI BINDHYA M.Com B.Ed class teacher for her
blessings and support given to me. Thank you all, who
directly and indirectly extended a helping hand in this
endeavor of mine.

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S.NO TOPICS PAGE NO.

1 INTODUCTION

2
WHY CASH FOW STATEMENT IS REQUIRED

3
OBJECTIVES OF CASH FLOW STATEMENT

4
FEATURES OF CASH FLOW STATEMENT

5
IMPORTANCE OF CASH FLOW STATEMENT
6
LIMITATIONS OF CASH FLOW STATEMENT
7 ADVANTAGES & DISADVANTAGES

8 PREPARATION OF CASH FLOW STATEMENT

9 CASH FLOW STATEMENT EXAMPLE

10 AIRTEL COMPANY’S CASH FLOW

11 CONCLUSION

INDEX
CASH FLOW STATEMENT

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INTRODUCTION

A Cash flow statement is an important tool used to manage finances by tracking the cash flow

for an organization. This statement is one of the three key reports (with the income statement

and the balance sheet) that help in determining a company’s performance. It is usually helpful

for making cash forecast to enable short term planning.

The cash flow statement shows the source of cash and helps you monitor incoming and

outgoing money. Incoming cash for a business comes from operating activities, investing

activities and financial activities. The statement also informs about cash outflows, expenses

paid for business activities and investment at a given point in time. The information that you

get from the cash flow statement is beneficial for the management to take informed decisions

for regulating business operations.

Companies generally aim for a positive cash flow for their business operations without which

the company may have to borrow money to keep the business going.

In financial accounting, a cash flow statement, also known as 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. Essentially, the cash flow statement is concerned with the flow of cash in

and out of the business. As an analytical tool, the statement of cash flows is useful in

determining the short-term viability of a company, particularly its ability to pay bills.

International Accounting Standard 7 (IAS 7) is the International Accounting Standard that

deals with cash flow statements.

People and groups interested in cash flow statements include:

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  Accounting personnel, who need to know whether the organization will be able to

cover payroll and other immediate expenses

 Potential lenders or creditors, who want a clear picture of a company's ability to

repay.

 Potential investors, who need to judge whether the company is financially sound.

 Potential employees or contractors, who need to know whether the company will be

able to afford compensation.

 Company Directors, who are responsible for the governance of the company, and are

responsible for ensuring that the company does not trade while insolvent.

 Shareholders of the company.

WHY CASH FLOW STATEMENT IS REQUIRED

The accounting profession realizes that reading only one or two financial statements is not

sufficient for understanding a company's finances and operations. Accordingly, the generally

accepted accounting principles (GAAP, US GAAP) require that the statement of cash flows

be part of a set of financial statements distributed outside of a company. A complete set of

financial statements consists of five financial statements and the notes to the financial

statements:

 Income statement

 Statement of comprehensive income

 Balance sheet

 Statement of stockholders' equity

 Statement of cash flows

 Notes to the financial statements

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While the income statement amounts make the news, the amounts are based on the accrual

basis of accounting. This method of accounting best measures a company's sales, expenses,

and earnings during a short time interval. However, the income statement does not measure

and report the amounts of cash that flowed in and out of the company. For example, the

income statement does not report the following:

 Cash collected from sales. (The cash might be collected from customers 45 days after

the sale.)

 Cash paid for goods sold. (Payment may have been made many months prior to their

sale.)

 Cash paid for buildings and equipment that will be expensed over the next 5 to 30

years.

 Cash received from the sale of long-term assets.

 Cash received from bank loans.

 Cash payments to reduce a loan's principal balance.

 Cash withdrawn by owners or cash dividends paid to stockholders.

A company's understanding of its cash inflows and outflows is critical for meeting its short-

term and long-term obligations to its suppliers, employees, and lenders. Current and potential

lenders and investors are also interested in the company's cash flows.

Financial analysts will review closely the first section of the cash flow statement, cash flows

from operating activities. Part of the review consists of comparing this section's total

(described as net cash provided by operating activities) to the company's net income. This is

done to see whether the revenues, expenses, and net income reported on the income statement

are consistent with the change in the company's cash balance.

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If they are not consistent, they will seek to uncover the root causes for the differences.

Perhaps the company's inventory is no longer in demand or is being returned by customers.

Perhaps receivables are not being collected, and so on. (In short, the analyst believes that

"Cash is king". While there can be some leeway in applying accounting principles, there is no

leeway when it comes to reporting the amount of cash.)

OBJECTIVES OF CASH FLOW STATEMENT

The primary objective of cash flow statement is to supply the necessary information

relating to generation of cash to the users of financial statement. It also highlights the

future or prospective cash positions i.e. cash or cash equivalent. The inflows and

outflows of cash can be represented with the help of this statement.

The Main Objectives of cash flow statement are:

(a) Measurement of Cash:

Inflows of cash and outflows of cash can be measured annually which arise from operating

activities, investing activities and financial activities.

(b) Generating inflow of Cash:

Timing and certainty of generating the inflow of cash can be known which directly helps the

management to take financing decisions in future.

(c) Classification of activities

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All the activities are classified into operating activities, investing activities and financial

activities which help a firm to analyse and interpret its various inflows and outflows of cash.

(d) Prediction of future:

A cash flow statement, no doubt, forecasts the future cash flows which helps the management

to take various financing decisions since synchronisation of cash is possible.

(e) Assessing liquidity and solvency position:

Both the inflows and outflows of cash and cash equivalent can be known, and as such,

liquidity and solvency position of a firm can also be maintained as timing and certainty of

cash generation is known i.e. it helps to assess the ability of a firm to generate cash.

(f) Evaluation of future cash flows:

Whether the cash flow from operating activities are quite sufficient in future to meet the

various payments e.g. payment of expense/debts/dividends/taxes .

FEATURES OF CASH FLOW STATEMENT

1. Cash Flow Statement is very dynamic in character since it records the investment of

cash from the beginning of the period to the end of the period.

2. It is a periodical statement as it covers a particular period.

3. This statement does not recognise matching principles.

4. This statement helps to calculate Cash from Operations/Cash Flows from Operational

activities.

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 5. It exhibits the changes of financial positions relating to operational activities,

investing activities and financial activities respectively, by which an analyst can draw

his conclusion.

IMPORTANCE OF A CASH FLOW STATEMENT

 For a business to be successful, it should always have sufficient cash. This enables it to pay

back bank loans, buy commodities, or invest to get profitable returns. A business is declared

bankrupt if it doesn’t have enough cash to pay its debts. Here are some of the benefits of a

cash flow statement:

Gives details about spending: A cash flow statement gives a clear understanding of the

principal payments that the company makes to its creditors. It also shows transactions which

are recorded in cash and not reflected in the other financial statements. These include

purchases of items for inventory, extending credit to customers, and buying capital

equipment.

Helps maintain optimum cash balance: A cash flow statement helps in maintaining the

optimum level of cash on hand. It is important for the company to determine if too much of

its cash is lying idle, or if there’s a shortage or excess of funds. If there is excess cash lying

idle, then the business can use it to invest in shares or buy inventory. If there is a shortage of

funds, the company can look for sources from where they can borrow funds to keep the

business going.

Helps you focus on generating cash: Profit plays a key role in the growth of a company by

generating cash. But there are several other ways to generate cash. For instance, when a

company finds a way to pay less for equipment, it is actually generating cash. Every time it

collects receivables from its customers quicker than usual, it is gaining cash.

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Useful for short-term planning: A cash flow statement is an important tool for controlling

cash flow. A successful business must always have sufficient liquid cash to fulfill short-term

obligations like upcoming payments.  A financial manager can analyze incoming and

outgoing cash from past transactions to make crucial decisions. Some situations where

decisions have to be made based on the cash flow include forseeing cash deficit to pay off

debts or establishing a base to request for credit from banks.

LIMITATIONS OF CASH FLOW STATEMENT

Cash Flow Statement is, no doubt, an important tool in financial management which exhibits

the movement of funds in various ways of a firm. It assists the management to understand the

amount of capital blocked-up in a specific segment of a firm. Although the cash flow

statement performs as an important tool, it is not free from snags.

Some of the limitations are:

(a) Fails to present Net Income:

Cash flow statement actually fails to present the net income of a firm for a period since it

does not consider non-cash items which can easily be ascertained by an Income Statement. It

can be used as a supplement to Income Statement.

(b) Fails to Assess the Liquidity and Solvency Position:

Practically cash flow statement does not help to assess liquidity or solvency position of a

firm. Proper liquidity position cannot be assessed from the cash flow statement which

presents only the cash position at the end of the period.

(c) Neither a substitute of Funds Flow Statement nor Income Statement:

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Cash flow statement is neither a substitutes of funds flow statement nor a substitute of

income statement. The functions which are performed by a funds flow statement or Income

statement cannot be done by a cash flow statement.

(d) Not to Assess Profitability:

Practically, cash flows from operation does not help to assess profitability of a firm since it

neither considers the costs nor revenues.

(e) Does not Conform with Companies Act:

The provision which are made be the companies’ Act is in conformity with Profit and Loss

Account and Balance Sheet and not in conformity with cash flow statement which is prepared

as per AS- 3.

ADVANTAGES OF CASH FLOW STATEMENT

 It shows the actual cash position available with the company between the two balance

sheet dates which funds flow and profit and loss account are unable to show. So it is

important to make a cash flow report if one wants to know about the liquidity position

of the company.

 It helps the company inaccurately projecting the future liquidity position of the

company enabling it  arrange for any shortfall in money by arranging finance in

advance and if there is excess than it can help the company in earning extra return by

deploying excess funds.

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  It acts like a filter and is used by many analysts and investors to judge whether

company has prepared the financial statements properly or not because if there is any

discrepancy in the cash position as shown by the balance sheet and the cash flow

statement, it means that statements are incorrect.

DISADVANTAGES OF CASH FLOW STATEMENT

 Since it shows only cash position, it is not possible to deduce the actual

profit and loss of the company by just looking at this statement.

 In isolation, this is of no use and it requires other financial statements like

balance sheet, profit and loss etc…, and therefore limiting its use.

PREPARATION OF CASH FLOW STATEMENT

Cash Flows Statement is required to be prepared using International Accounting Standard

7 (or using the Accounting Standard 3  in India). While preparing the Cash Flow Statement,

the cash flows during the period are classified into 3 major categories:-

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I. Cash Flow from Operating Activities (Direct Method/ Indirect Method)

II. Cash Flow from Investing Activities

III. Cash Flow from Financing Activities

Classification by activities provides information that allows users to assess the impact of

those activities on the financial position of the enterprise. This information also helps in

evaluating the inter-relationships between these activities.

I. Cash Flow from Operating Activities (Indirect Method)

While preparing the Cash Flow Statement as per the Indirect Method, the Net Profit/Loss

for the period is used as the base and then adjustments are made for items that affected the

Income Statement but did not affect the Cash

While preparing the Cash Flow Statement as per the Indirect Method, Non Cash and Non

Operating charges in the Income Statement are added back to the Net Profits while Non-Cash

& Non-Operating Credits are deducted to calculate the Operating Profit before Working

Capital Changes. The Indirect Method of preparating of Cash Flow Statement is a partial

conversion of accrual basis profit to Cash basis profit. Further, necessary adjustments are

made for Increase/Decrease in Current Assets and Current Liabilities to obtain Net Cash

Flows from Operating Activities as per the Indirect Method.

II. Cash Flow from Investing Activities

The activities of Acquisition and Disposal of Long Term Assets and other Investments not

included in cash equivalents are Investing activities. Separate disclosure of Cash Flows

arising from Investing Activities is important because the Cash Flows represent the extent to

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which expenditures have been made for resources intended to generate future income and

cash flows.

III. Cash Flow from Financing Activities

Financing Activities are those activities which result in a change in the size and composition

of owner’s capital and borrowing of the organisation. The separate disclosure of cash flows

arising from financing activities is important because it is useful in predicting the claims on

future cash flows by the providers of funds.

CASH FLOW STATEMENT EXAMPLE

Following is an example of what a cash flow statement looks like. This is the cash flow

statement for XYZ company at the end of Financial Year (FY) 2018.

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From the above example, we can see that the computed cash flow for FY 2018 was $

2,528,000. Let’s look at what each section is showing.

Operating activities: In this section, we can see incoming cash values recorded as positive

while outgoing cash values are negative and are usually represented in brackets. When you

subtract the outgoing value from the incoming value, you arrive at the net cash flow for

operating activities. In this example, we can see that the net value for operating activities is

positive, which is a good sign for investors.

Investing activities: Since the core operating activities are generating income, the business

can now invest in equipment. Because the company is investing $500,000 in equipment,

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its cash flow in this section is negative. This negative value isn’t a bad thing—you can say

that the company’s capacity to invest in PPE reflects its growth.

Financial activities: After investing in equipment, the company still has $10,000 to pay off

its debts—in this case, notes payable. Besides this the company will still have plentiful to

cover its loans in future.

Net cash flow: When you add all three net values from the three sections on the cash flow

statement, you arrive at the net cash flow value, which in this case is $ 2,528,000. This shows

that the company has enough cash to continue operating.

AIRTELS CASH FLOW STATEMENT

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 CASH FLOW OF BHARTI AIRTEL (in Rs. Cr.) MAR 22 MAR 21 MAR 20 MAR 19 MAR 18  

  12 mths 12 mths 12 mths 12 mths 12 mths  

NET PROFIT/LOSS BEFORE EXTRAORDINARY ITEMS AND 12,483.1 - - - 3,267.00  

TAX 0 3,118.40 42,846.5 1,731.80
0

Net CashFlow From Operating Activities 55,016.6 48,205.0 18,128.7 20,070.2 29,853.8  
0 0 0 0 0

Net Cash Used In Investing Activities - - - - -  

41,869.6 26,888.4 30,491.9 28,500.9 27,967.6
0 0 0 0 0

Net Cash Used From Financing Activities - - 19,144.4 9,463.80 1,920.50  

15,203.2 24,910.3 0
0 0

Foreign Exchange Gains / Losses 391.90 -397.20 893.40 215.30 28.10  

Adjustments On Amalgamation Merger Demerger Others 0.00 0.00 0.00 0.00 0.00  

NET INC/DEC IN CASH AND CASH EQUIVALENTS - - 7,674.60 1,248.40 3,834.80  

1,664.30 3,990.90

Cash And Cash Equivalents Begin of Year 9,063.00 13,053.9 5,379.30 4,130.90 -988.00  
0

Cash And Cash Equivalents End Of Year 7,398.70 9,063.00 13,053.9 5,379.30 2,846.80  
0

Source : Dion Global Solutions Limited

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