CASH FLOW STATEMENT

CASH FLOW STATEMENT

A cash flow statement provides information about the historical changes in cash and cash equivalents of an enterprise by classifying cash flows into operating, investing and financing activities.

Benefits of Cash Flow Statement

v It enables to assess the financial structure of an organization.

v It helps in in assessing the ability of the enterprise to generate cash and cash equivalents.

v It also helps in fine tuning its cash inflow and cash outflow, keeping in response to changing condition.

v It helps in comparing inflows and out flows of cash.

Cash Flows

Cash from Operating Activities

          These are the principal revenue generating activities (or the main activities) of the enterprise and other activities that are not investing or financing activities.

Cash Inflows from operating activities

v Cash receipts from sale of goods and the rendering of services.

v Cash receipts from royalties, fees, commissions and other revenues.

Cash Outflows from operating activities

v Cash payments to suppliers for goods and services.

v Cash payments to and on behalf of the employees.

v Cash payments to an insurance enterprise for premiums and claims, annuities, and other policy benefits.

v  Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities.

Cash from Investing Activities

          Investing activities relate to purchase and sale of long-term assets or fixed assets such as machinery, furniture, land and building, etc.

Cash Outflows from investing activities

v Cash payments to acquire fixed assets including intangibles and capitalised research and development.

v Cash payments to acquire shares, warrants or debt instruments of other enterprises other than the instruments other than those held for trading purposes.

v Cash advances and loans made to third party (other than advances and loans made by a financial enterprise wherein it is operating activities).

Cash Inflows from Investing Activities

v Cash receipt from disposal of fixed assets including intangibles.

v Cash receipt from the repayment of advances or loans made to third parties ( except in case of financial enterprise).

v Cash receipt from disposal of shares, warrants or debt instruments of other enterprises except those held for trading purposes.

v Interest received in cash from loans and advances.

v Dividend received from investments in other enterprises.

Cash from Financing Activities

          Financing activities are activities that result in changes in the size and composition of the owners’ capital and borrowings of the enterprise.

Cash Inflows from financing activities

v Cash proceeds from issuing shares (equity or/and preference).

v Cash proceeds from issuing debentures, loans, bonds and other long term borrowings.

Cash Outflows from financing activities

v Cash repayments of amounts borrowed.

v Interest paid on debentures and long-term loans and advances.

v Dividends paid on equity and preference capital.

Extraordinary Items

Extraordinary items are non-recurring in nature and hence cash flows associated with extraordinary items should be classified and disclosed separately as arising from operating, investing or financing activities. e.g. loss due to theft or earthquake or flood.

Interest and Dividend

Payment of interest and dividends are classified as financing activities whereas receipt of interest and dividends are classified as investing activities.

Taxes on Income and Gains

v Tax on operating profit should be classified as operating cash flows.

v Dividend tax, i.e. Tax paid on dividend should be classified as financing Activity along with dividend paid.

v Capital gains tax paid on sale of fixed assets should be classified under Investing activities.

Non-cash Transactions

Investing and financing transactions that do not require the use of cash or cash equivalents should be excluded from a cash flow statement.

CASH FLOW STATEMENT

Particulars	Amount(Rs)
(A) Cash Flows From Operating Activities Net Profit/Loss before Tax and Extraordinary Items + Deductions already made in Profit and Loss on account of Non-cash items such as Depreciation, Goodwill to be Written-off. + Deductions already made in Profit and Loss on Account of Non-operating items such as Interest. – Additions (incomes) made in Profit and Loss on Account of Non-operating Items such as Dividend Received, Profit on sale of Fixed Assets. Operating Profit before Working Capital changes + Increase in Current Liabilities + Decrease in Current Assets – Increase in Current Assets – Decrease in Current Liabilities Cash Flows from Operating Activities before Tax and Extraordinary Items. – Income Tax Paid +/– Effects of Extraordinary Items                                                                 Net Cash from Operating Activities
(B) Cash Flows From Investing Activities Cash receipt from disposal of fixed assets including intangibles. (-)Cash payments to acquire fixed assets including intangibles and capitalised research and development. Cash receipt from the repayment of advances or loans made to third parties ( except in case of financial enterprise). (-)Cash payments to acquire shares, warrants or debt instruments of other enterprises other than the instruments other than those held for trading purposes. Cash receipt from disposal of shares, warrants or debt instruments of other enterprises except those held for trading purposes. (-)Cash advances and loans made to third party Interest received in cash from loans and advances. Dividend received from investments in other enterprises.                                                   Net cash from Investing Activities
(C)Cash Flows from Financing Activities Cash proceeds from issuing shares (equity or/and preference). Cash proceeds from issuing debentures, loans, bonds and other long term borrowings. (-) Cash repayments of amounts borrowed. (-) Interest paid on debentures and long-term loans and advances. (-) Dividends paid on equity and preference capital.                                        Net cash used in Financing Activities
Net increase in Cash and Cash Equivalents (A+B+C) (+) Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period