CASH FLOW

ANALYSIS

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INTRODUCTION
 Adequacy and timely availability of cash is essential for the
success of any firm’s activities. Therefore, management of cash
is of vital importance to any enterprise.

Meaning:
 Cash Flow Statement is a statement, which describes the
inflows (sources) and outflows (uses) of cash and cash
equivalents during a specified period.
 Cash Flow Statement explains the causes of changes in cash
position of a business enterprise, between two dates of balance
sheets.
 Cash flow statement is a tool that is available to the
management to assess, monitor and control the liquidity
available in the enterprise.
 Cash flow statement is also called as “Where Got-Where Gone
Statement”. 2
DEFINITION
 A Cash Flow Statement may be defined as, “A
financial statement that summarizes the cash receipts
and payments and net changes resulting from
operating, financing and investing activities of an
enterprise during a given period of time”.

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CLASSIFICATION OF CASH
FLOWS
 Cash Flows from Operating Activities
 Cash Flows from Investing Activities

 Cash Flows from Financing Activities

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CASH FLOWS FROM
OPERATING ACTIVITIES:
 Operating activities are the revenue producing activities
of the enterprise and all other activities, other than
Investing and Financing activities.

 Revenue producing activity is the key activity in the cash

flows and it generally results from the transactions and
other events that determine the net profit or loss of the
organization.

 It also affect current assets and current liabilities on the

Balance Sheet 5
Cash Inflow Cash Outflow

1. Cash Collections from

1. Cash payments for goods
debtors. and services.
2. Cash Sales. 2. Cash payments to
employees for wages &
3. Refund of Income Tax. others.
3. Cash payments to
creditors & Bills payable.
4. Income Tax paid.
5. Other operating
expenses.
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CASH FLOWS FROM INVESTING
ACTIVITIES
 Investing activities are the acquisition of long term assets
and other investments that are not included in cash
equivalent.

 In other words, purchase and sale of long term assets

such as plant and machinery, land and building etc. that
are held by the firm for long-term production are
included in this category.

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 Cash Outflow
Cash Inflow

1. Cash sale of plant, 1. Cash purchase of

equipments and other plant, equipment
long-term assets. and other long-
2. Cash sale of term assets.
investments-shares, 2. Purchase of
debentures and other shares, debentures
securities. and securities.
3. Repayment of loans/ 3. Loans/ advances
advances by third to third parties.
parties.
4. Interest Received.
5. Dividend Received. 8
CASH FLOWS FROM FINANCING
ACTIVITIES
 Financing activities are those activities that result in
changes in size and composition of owners’ capital
including preference share capital and long-term debts.

 It increases or decreases long-term liabilities and owner’s

equity

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 Cash Outflow
Cash Inflow

1. Payment of cash
1. Cash Received from dividend.
issue of shares/
debentures. 2. Repayment of loans.
2. Receipt of short- term 3. Reacquiring preference
and long term loans. or equity shares.
4. Redemption of
debentures.
5. Interest Paid.
6. Dividends Paid.

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CHANGES IN CURRENT ASSETS
AND CURRENT LIABILITIES

Current Asset Current Liability

Cash Cash

Current Asset Current Liability

Cash Cash

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 Q.1. After taking into consideration the undermentioned
items, Jain ltd made a net profit of Rs.1,00,000 for the year
ended 31st Dec 2021

Loss on sale of Machinery 10,000

Depreciation on building 4,000
Depreciation on Machinery 5,000
Preliminary Expenses are written-off 5,000
Provision for taxes 10,000
Goodwill written-off 5,000
Gain on sales of Buildings 8,000

 Find out cash from Operation

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 Q.2. The following information is available from the books
of Suresh for the year 31/03/2021. Calculate cash from
operation.

Particulars 31/12/2020 31/12/2021

Profit made during the year - 2,50,000
Prepaid expenses 1,000 2,000
Debtors 80,000 20,000
Bills Receivables 25,000 40,000
Creditors 45,000 65,000
Bills Payable 13,000 5,000
Outstanding Expenses 2,500 3,000
Accrued Expenses 1,500 1,800
Income received in advance 500 400
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 Dividend paid to Shareholder is classified as:

 Buy-back of shares is classified as

 Interest received on long term investment is classified as

 Purchase of New Fixed Assets represent Which activity

 Depreciation of fixed assets, amortization of patents are the examples of ------------ so

therefore needs to be added in profit

 Debtors' balance shown in PQR company’s balance sheet was Rs. 1,00,000 and Rs.
1,50,000 for year 1 and year 2 respectively. This means there is

 Redemption of Debentures by converting into equity shares is which activity?

 ABC company has made a Provision to buy a new Asset in future will be considered as

 MH company purchased raw materials, paid to labourers for their new manufacturing15
unit. This will classified as