Trang 1
Module 4ModuleModuleModule 444 The Cash Flow StatementThe Cash Flow Statement Omar ElKheshen – kheshen@gmail.com 1
Trang 2
Learning Objectives By the end of this module you should understand: 1. The need for a cash flow statement in addition to a profit and loss account and balance sheet 2. That profit is not the same as cash 3. The major sources and uses of cash and how these are compiled into a cash flow statementflow statement 4. How to interpret a cash flow statement, in particular the critical importance of cash flow from operations Omar ElKheshen – kheshen@gmail.com 2
Trang 3
Agenda 4.1 Introduction 4.2 Why Are Cash Flow Statements Needed? 4.3 What Is ‘Cash’ in a Cash Flow Statement? 4.4 Cash: Where Does it Come from? Where Does it Go to? 4.5 Eight Major Categories of Cash Flow 44..66 Worked Example with CommentaryWorked Example with Commentary 4.7 Do-it-Yourself Example Review Questions Case Studies Omar ElKheshen – kheshen@gmail.com 3
Trang 4
We will use the cash flow statement of the sole trader encountered in Module 1 and analyze how we’ve derived its main figures Cash Flow Statement For the Period Actions 1–7 The cash flow statement portrays only those economic events of a business which affect its cash flows Omar ElKheshen – kheshen@gmail.com 4
Trang 5
Agenda 4.1 Introduction 4.2 Why Are Cash Flow Statements Needed? 4.3 What Is ‘Cash’ in a Cash Flow Statement? 4.4 Cash: Where Does it Come from? Where Does it Go to? 4.5 Eight Major Categories of Cash Flow 44..66 Worked Example with CommentaryWorked Example with Commentary 4.7 Do-it-Yourself Example Review Questions Case Studies Omar ElKheshen – kheshen@gmail.com 5
Trang 6
The P/L Account and the balance sheet are not enough to tell what is going on in an organization P/L Account Reflects the flow of resources throughout the financial year Measurement of accomplishment and efforts is NOT in cash due to the accounting principles Balance SheetBalance Sheet Reports on inventory of resources and claims against theseReports on inventory of resources and claims against these resources at the end of the financial year The movement of cash during the accounting period is derived from both the balance sheet and the P/L account Omar ElKheshen – kheshen@gmail.com 6
Trang 7
Look at the P/L Account drawn up at the end of Action 7 to see how accounting principles do not consider cash Profit and Loss Account For the Period Actions 1–7 ‘Sales’ implies that customers have paid €750 for goods and services providedprovided ‘Depreciation’ implies that Co. has paid €50 These are all not true implications, the sales were sold on credit without any cash exchange while the depreciation did not affect cash Profit ≠ Cash Omar ElKheshen – kheshen@gmail.com 7
Trang 8
Cash flow statements are needed to ‘unstitch’ the accounting principles applied in compiling balance sheets and P/L accounts An Organization Either Or Reports a healthy profit but is running Report a worrying loss but have plenty out of cash of cash Users of financial statements, including managers, need a reconciliation between profits and cash Cash Flow Statement Reveals whether the entity has sufficient cash funds to finance its future operations and its future ambitions for dividend payments Omar ElKheshen – kheshen@gmail.com 8
Trang 9
Managers and other users of company financial statements want answers to the following range of questions 1 Operational Do the normal trading operations generate sufficient Well-being funds to enable the company to continue paying dividends? 2 Source of Have the dividends paid this year based on this year’s Dividend profits been paid out of cash generated from operations PaymentsPayments or from money borrowed?or from money borrowed? 3 Funding of Where did the money for asset acquisition come from? Asset Acquisitions From operations or from borrowings? 4 Company Is the company solvent? That is, has it sufficient liquid Solvency assets to meet its short term obligations? 5 Extent of Why does the company seem to borrow so much when Borrowing it’s making so much profit? Omar ElKheshen – kheshen@gmail.com 9
Trang 10
Agenda 4.1 Introduction 4.2 Why Are Cash Flow Statements Needed? 4.3 What Is ‘Cash’ in a Cash Flow Statement? 4.4 Cash: Where Does it Come from? Where Does it Go to? 4.5 Eight Major Categories of Cash Flow 44..66 Worked Example with CommentaryWorked Example with Commentary 4.7 Do-it-Yourself Example Review Questions Case Studies Omar ElKheshen – kheshen@gmail.com 10
Trang 11
Detailed accounting rules expand at length on the definition of cash Cash Includes Bank Balances Cash Balances Cash Equivalents Includes Temporary Investments of CashTemporary Investments of Cash Readily Convertible into Cash Mature within 3 Months into Cash Omar ElKheshen – kheshen@gmail.com 11
Trang 12
Agenda 4.1 Introduction 4.2 Why Are Cash Flow Statements Needed? 4.3 What Is ‘Cash’ in a Cash Flow Statement? 4.4 Cash: Where Does it Come from? Where Does it Go to? 4.5 Eight Major Categories of Cash Flow 44..66 Worked Example with CommentaryWorked Example with Commentary 4.7 Do-it-Yourself Example Review Questions Case Studies Omar ElKheshen – kheshen@gmail.com 12
Trang 13
In this part we will see some of the possible sources of cash Where Does Cash Come from? Profit from Loans Increase in Decrease in Operations Creditors Debtors CapitalCapital Sale of FixedSale of Fixed Decrease inDecrease in Introduction Assets Inventories Omar ElKheshen – kheshen@gmail.com 13
Trang 14
Profit is the best starting point for determining cash from operating activities; but still adjustments have to be made to it Adjustments to Profit Depreciation reduces profits but has no impact Depreciation Add on cash It is charged against profits but has no impactIt is charged against profits but has no impact Bad Debts Provisions on cash (the cash left the company a long time Add ago when the goods were made and sold) The total receipt of the cash from the party Profit on Sale of asset Deduct who purchased the asset is a source of cash, and not the gain alone Omar ElKheshen – kheshen@gmail.com 14
Trang 15
It does not matter how much depreciation is charged to a company’s P&L – its cash flow outcome is the same Illustration Let us assume both companies operate identical businesses except for depreciation rates. Company 1 writes off its assets over ten years and company 2 over four years. Omar ElKheshen – kheshen@gmail.com 15
Trang 16
Possible sources of cash (Continued) Where Does Cash Come from? Profit from Loans Increase in Decrease in Operation Creditors Debtors CapitalCapital Sale of FixedSale of Fixed Decrease inDecrease in Introduction Assets Inventories All organizationsAll organizations start off with anstart off with an injection of cashinjection of cash from their ownersfrom their owners Omar ElKheshen – kheshen@gmail.com 16
Trang 17
Possible sources of cash (Continued) Where Does Cash Come from? Profit from Loans Increase in Decrease in Operation Creditors Debtors CapitalCapital Sale of FixedSale of Fixed Decrease inDecrease in Introduction Assets Inventories Loans are extensively used when investment andLoans are extensively used when investment and growth ambitions exceeds the shareholders’ capitalgrowth ambitions exceeds the shareholders’ capital introduction and cash generated from operationsintroduction and cash generated from operations Omar ElKheshen – kheshen@gmail.com 17
Trang 18
Possible sources of cash (Continued) Where Does Cash Come from? Profit from Loans Increase in Decrease in Operation Creditors Debtors CapitalCapital Sale of FixedSale of Fixed Decrease inDecrease in Introduction Assets Inventories The total amount realizedThe total amount realized less the costs associatedless the costs associated with disposal is addedwith disposal is added Omar ElKheshen – kheshen@gmail.com 18
Trang 19
Possible sources of cash (Continued) Where Does Cash Come from? Profit from Loans Increase in Decrease in Operation Creditors Debtors CapitalCapital Sale of FixedSale of Fixed Decrease inDecrease in Introduction Assets Inventories The business is owing thisThe business is owing this money to its suppliers andmoney to its suppliers and for afor a short period is able to useshort period is able to use the money for otherthe money for other business purposesbusiness purposes Omar ElKheshen – kheshen@gmail.com 19
Trang 20
Possible sources of cash (Continued) Where Does Cash Come from? Profit from Loans Increase in Decrease in Operation Creditors Debtors CapitalCapital Sale of FixedSale of Fixed Decrease inDecrease in Introduction Assets Inventories When a company lowersWhen a company lowers its pile of inventories itits pile of inventories it releases cash tied up inreleases cash tied up in these itemsthese items Omar ElKheshen – kheshen@gmail.com 20
Hiển thị 20 trang đầu. Tải tài liệu để xem đầy đủ.
Bình luận (0)
Chưa có bình luận nào. Hãy là người đầu tiên!