QUESTION # 1
CASH FLOW STATEMENT
Cash flow is the net amount of cash being transferred into and out of a business.
A company’s ability to create value for shareholders is determined by its ability to
generate positive cash flows
DEPRECIATION
Reduction in value of an asset.
Recorded as a “non-cash” expense in Income statement that was subtracted
(Add back to calculate cashflow)
ACCOUNTS RECEIVABLE
Amounts owed to a company by its customers (Subtract what you sold on credit)
The money is owed to you but you haven’t received the cash yet
INVENTORIES
Raw goods, in-progress goods, and finished goods that are on hand, in stock
(Subtract as there was an outflow of cash to purchase the inventory)
ACCOUNTS PAYABLE
Money owed by a business to its suppliers. (Add back what you didn’t pay out in cash)
You owe the money but you haven’t paid it out yet in cash
NET CASH FLOW
A positive cash flow, it means the company’s assets are increasing.
Operating cash flow includes all cash generated by a company’s main business activities
Net Profit
+ Depreciation
– Accounts Receivable
– Inventories
+ Accounts Payable
_____________________
– Purchase of Fixed Assets
+ Inflow from issue of equity shares
+ Borrowings
_____________________
NET CASH INFLOW / OUTFLOW
| (A) Cash from operations | 2012–13 | 2013–14 | 2014–15 |
| Net profit as per income statement | Revenue – COGS = 2000-1240=760 | 4800-2832=1969 | 8000-4800=3200 |
| ADD: Non-operating expenses (Depreciation) | +100 | +400 | +660 |
| Increase in current assets and decrease in current liabilities | |||
| LESS: Accounts receivable (Current less prev yr) | -300 | -1500 | -2100 |
| LESS Inventories (Current less previous year) | -320 | -1500 | -2250 |
| Decrease in current assets and increase in current liabilities | |||
| ADD: Accounts payable
(Current Liabilities less previous year) |
+260 | +1728 | +2780 |
| Net cash inflow/outflow from operations (A) | 500 | 1096 | 706 |
| B) Cash from investing activity | |||
| LESS – Purchase of fixed assets (the outflow of cash)
(add back depreciation less previous year) |
1900 | 2500 | 4700 |
| Net cash outflow from investing activity (B)
(Same # as above) |
1900 | 2500 | 4700 |
| (C) Cash from financing activity | |||
| ADD: Inflow from the issue of equity shares
(Current year less previous years) |
1200 | 1600 | 2000 |
| ADD: Borrowings (long term)
(Current year less previous year) |
736 | 1236 | 2500 |
| Net cash inflow from financing (C)
(Equity + Borrowings) |
1936 | 2836 | 4500 |
| Net cash inflow/outflow
A + B + C |
2436 | 3932 | 5206 |
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