Analyzing Cash Flow

Statement
Session 13
Reading A Cash Flow Statement

Positive Core Business Activities Generating Cash

Cash From Operations
Negative Core Business Activities Burning Cash

Positive Cash coming from sale of non-current assets and/ or Income

from investments (Interest/ Dividends)
Cash From Investments
Negative Cash being used in buying non-current assets or investments

Positive Cash coming raising money through equity (issuing shares) or

debt (through loans)
Cash From Financing
Negative Cash being used in servicing debt (interest), paying dividend,
repaying debt or buying back equity
Business Life Cycle

Start Up Growth Maturity Decline

Cash Flows in the Start-Up Phase
PROFITABILITY CFO CFI CFF

Negligible Sales Negative Highly Negative Highly Positive

Highly Negative Higher Credit to Capacity Building and High Funding Needed for
Customers Expansion Operations and
Expansion

Higher Discounts No Proceeds from Sale of

Assets
Lesser Debt & More
Higher Inventory Buildup Equity

High Costs due to No Dividends and

Lesser Credit from Interest
inefficiencies and low
Suppliers
scale
Cash Flows in the Growth Phase
PROFITABILITY CFO CFI CFF

Sales Picking Up Less Negative/ Positive Negative Positive

Continuous Expansion Debt Funding now

Positive Discounts Stabilizing and Capacity Buildup available

Interest Cost
Higher Inventory Buildup
& Credit to Customers
No Dividend as funds are
reinvested

Some Credit from

Suppliers

Some Tax Expense as Cost reduction due to

Book Profits are +ve scale and experience
Cash Flows in the Maturity Phase
PROFITABILITY CFO CFI CFF

Highly Positive Slightly Negative Negative

Positive

High Cost Efficiency due No additional avenue for Repayment of Loans

Sales High & Stabilized to scale Investment
Higher Dividends
Stability in Working Inflation Adjusted
Capital Assets like Investment in Assets (For Reducing/ Stabilizing
Receivables and Replacements) Interest
Inventory
Buy Back of Shares
High Tax Outflows

High Credit from

Suppliers
Cash Flows in the Decline Phase
PROFITABILITY CFO CFI CFF

Slightly Positive & Positive Negative

Low & Declining
Declining
Sale of Redundant Repayment of Loans
Sales Saturated & Working Capital Assets Capacity and Assets
Declining Reducing Higher Dividends
Concentration of
High Tax Outflows as Manufacturing Facilities Reducing Interest
Capital Investments go may improve margins
down and Assets are sold
Buy Back of Shares

Cost inefficiencies due to

reducing scale
Cash Flows before exit from Business
PROFITABILITY CFO CFI CFF

Most likely to be Positive Negative

Negative
negative
Net sale of assets Repayment of Loans
Even if positive, mainly
because of Depreciation, Almost no dividend
Reduction in Working False Capitalization of
Capital Assets Expenses
Capital funding drying up