CASH FLOW

STATEMENT
(Financing
activities)
07042020
 Learning Objectives
To explain how the statement of cash flows is prepared

To interpret the information presented in the statement

To understand about importance of cash flow

statement
 Statement of Cash Flows

A summary of a firm’s payments

during a period of time.
This statement reports cash inflows
and outflows based on the firm’s
operating activities,
activities
investing activities and
financing activities.
activities
Sources and Applications of Cash

Sources Applications
(Inflows) (Outflows)
Profitable Operations (R-E=NI) Unprofitable Operations

Sale of long-term assets Purchase of long-term assets

Owners invest in business Owners withdraw from business

Long term borrowings Repayment of Long term

borrowings
 Sources and Applications of Cash
Sources Applications (Outflows)
(Inflows)
Profitable Operations Unprofitable Operations Operating Activities
(R-E=NI)
Sale of long-term assets Purchase of long-term assets
Investing Activities

Owners invest in business Owners withdraw from business

Financing
Long term borrowings Repayment of Long term borrowings Activities
 What is Cash Flow from Financing
Activities?

• Cash Flow from Financing Activities is the net amount of

funding a company generates in a given time period used to
finance its business.
• Finance activities include the followings
• issuance and repayment of equity,
• payment of dividends,
• issuance and repayment of debt, 
• Companies that require capital will raise money by issuing debt
or equity, and this will be reflected in the cash flow statement.
•
 Cash Flow From Financing
Activities
• Financing Activities are that allow a firm to raise
capital and repay investors, such as issuing cash
dividends, adding loans or issuing more shares.
• Example : If a book publishing company, finances its
funds for acquisition of fixed assets through raising
of loans or issue of share capital.
• Any cash inflows or outflows from these activities of
the company are to be treated as cash flows from
financing activities.
Financing activities include:
• Issuance of equity
• Repayment of equity
• Payment of dividends
• Issuance of debt
• Repayment of debt
• Capital/finance lease payments
Activities in financing are:
• Cash dividend paid (cash outflow)
• Increases in short-term borrowings (cash inflows)
• Decrease in short-term borrowings (cash outflow)
• Long-term borrowings (cash inflows)
• Repayment of long-term borrowings  (cash outflow)
• Share sales (cash inflows)
• Share repurchases (cash outflow)
Example
 Solution
• Prepare the cash flow from Financing, Assume current dividend 17000.
• we need to look at the Balance Sheet items that include the Debt and Equity. In
addition, we also need to include the cash dividends paid as cash outflows here.
• Bonds – the company raises bonds and results in the cash inflow of $40,000 –
$30,000 = $10,000
• Common Stock – Change in common stock balance =  $80,000 – $100,000  =
– $20,000
• Please do note that we do not make the changes in retained earnings as retained
earning is linked to the Net Income from the income statement. It is not a part of
financing activities.
• Cash Dividends Paid = – Dividends + increase in dividends payable =  -17,000
+ $10,000 = -$7,000
• Cash Flow from Financing Activities Formula = $10,000 – $20,000 – $7,000
= $17,000
 CALCULATE CASH FLOW FROM
INVESTING and FINANCING ACTIVITIES

Sold Plant and machinery Rs 20,000

Purchased Land and building Rs 30,000
Purchased 20 Shares of XYZ Ltd for Rs 10,000
Proceeds from sale of equipment Rs 30,000
Repayment of loan Rs 20,000

Dividend Received Rs.2,500

CALCULATE CASH FLOW FROM
FINANCING ACTIVITIES
 From the following Balance Sheet prepare cash flow statement by
calculating three activities separately

Liabilities 2011 2012 Assets 2011 2012

Share capital 200,000 250000 Goodwill 10000 2000
Debentures 100,000 80000 Land & 200000 280000
Building
General 50000 70000 Machinery 100000 130000
Reserve
Creditors 40000 60000 Debtors 40000 60000
Bills payable 20000 100000 Stock 70000 90000
Outstanding 25000 20000 Cash 15000 18000
exp
435000 580000 435000 580000
CALCULATE CASH FLOW FROM
INVESTING and Financing ACTIVITIES

Issue of Equity Shares Rs 20,000

Issue of Debentures Rs 30,000
Purchased Shares Rs 10,000
Sale of equipment Rs 30,000
Repayment of loan Rs 20,000

Interest Paid Rs.5,000

Dividend Paid Rs.2,000
Dividend Received Rs.2,500
 THANK YOU

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