Topic: Cash Flow Statement
Submitted To:
Mr. Gurdeepak Singh
Submitted By:
Managers
Cash flow statement
Introduction
Cash flow statement is one of the tools for financial analysis and interpretation which tells us the financial soundness or unsoundness of the business. Cash flow statement tells us the change in the cash position of the business between two balance sheet dates. The change between them is ascertained from outflow and inflow of cash. 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. It provides the information about cash receipts and cash payments.
It is defined as “A financial statement that summarizes inflows and outflows of cash and its equivalent and net change in cash resulting from operating, financing and investing activities of an enterprise during a given period.”
Discussion
Cash flow statement analysis gives investor the information of "true" profit, because it relies on real cash transactions in the time they occur, which is different to revenues and expenses. The primary goal of cash flow analysis is to identify, in a timely manner, cash flow problems as well as cash flow opportunities. The primary document used in cash flow analysis is the cash flow statement.
It is a listing of cash flows that occurred during the past accounting period. A projection of future flows of cash is called a cash flow budget.
Cash flow statement analysis will show you, how much money was earned and spent by a company in a specific time, usually a quarter or a year. One would say it reveals the same information as income statement, but there is an important difference among them related to accrual accounting. Revenues and expenses in income statement are booked when they occur, which is in most cases not the same point of time as cash changes hands. On the other side, income statement includes some revenues and expenses, which are not booked in cash flow statement.
To simplify cash flow statement analysis understanding, you can think of final net cash from operations as the "true" company's profit, while the net profit reported in the income statement doesn't necessary mean any increase in the balance sheet at the end of the accounting period.
Cash Flow from Operating Activities
This section of cash flow statement analysis is related to the cash that comes in from sales of the company's goods and services minus the cash spent for producing its selling products.
Figures from cash flow statement are often used as a preview signal of the future net income. Interesting information for investors is the dynamic of the gap between cash flow from operations and net income for the last few periods.
Cash Flow from Investing Activities
Capital expenditures are related to new equipment and other investment related with company's ongoing primary business. Acquisitions and investments on financial markets are also part of this section of cash flow statement.
One of the most important parts of analyzing investing figures is to compare depreciation and re-invested capital in ongoing business in a specific period.
Cash Flow from Financing Activities
Outside financing activities can be related to cash inflows out of primary (new emission) stocks of bonds selling or of additional borrowings submitted by banks on one side, while cash outflows can represent paying back a bank loan, dividend payments or buying back its own common stocks.
Conclusion
An analysis of cash flow statement basically shows where a business's money comes from and where the money goes. By understanding the basics of cash flow management, company management are better equipped to make financial decisions regarding such issues as whether or not to purchase or sell capital assets, taking on and repayment of debt, and plans for additional growth. Investors can use the information from a cash flow statement as part of making wise decisions about buying, holding, or selling stock in the company. By adjusting earnings, revenues, assets and liabilities, the investor can get a very clear picture of what some people consider the most important aspect of a company: how much cash it generates and, particularly, how much of that cash stems from core operations.
References
Contributors
91 Nishant Mahajan (B) INTRODUCTION
30 Hitesh Bhardwaj (A) DISCUSSION
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