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Cash Flow

The Cash Flow Statement is a financial report that details cash inflows and outflows, helping stakeholders assess a company's liquidity and financial health. It can be prepared using the Direct or Indirect Method, each offering different presentations of cash flow details. Understanding the classifications of cash flows—operating, investing, and financing—enhances decision-making and transparency for stakeholders.

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9 views6 pages

Cash Flow

The Cash Flow Statement is a financial report that details cash inflows and outflows, helping stakeholders assess a company's liquidity and financial health. It can be prepared using the Direct or Indirect Method, each offering different presentations of cash flow details. Understanding the classifications of cash flows—operating, investing, and financing—enhances decision-making and transparency for stakeholders.

Uploaded by

mdrrmc Dangcagan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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I.

Introduction

The Cash Flow Statement is a financial report that details the inflows and outflows of
cash within a specific period. It helps stakeholders evaluate a company’s liquidity,
operational efficiency, and financial health. Two common methods of preparing this
statement are the Direct Method and the Indirect Method, which differ in presentation
but arrive at the same net cash flow.

Analyzing the Cash Flow Statement enables stakeholders to gain a deeper


understanding of a company's financial dynamics. It highlights key patterns in cash
management, reveals the organization’s ability to cover short-term liabilities, and
offers insights into its long-term financial strategies. The choice between the Direct
and Indirect Method can significantly affect how cash flow details are presented,
particularly in the Operating Activities section, influencing how easily trends and
discrepancies are identified.

II. Objectives of Cash Flow Statement

1. To provide insights into the company’s cash-generating ability.


2. To assess the company’s liquidity and financial flexibility.
3. To evaluate the company’s capacity to meet its financial obligations.
4. To facilitate informed decision-making by stakeholders.

III. Importance of Cash Flow Statement Classifications

1. Operating Activities: Shows cash flows from the core operations of


the business, such as cash received from customers and payments to
suppliers.
2. Investing Activities: Includes cash used in or generated from the
acquisition and disposal of long-term assets like property or
investments.
3. Financing Activities: Reflects cash flows related to borrowing,
repaying debt, and equity financing.

IV. Net Cash Flow From Operating, Investing, and Financing Activities

A Cash Flow Statement breaks down the total cash flow into the three
classifications:
Company A – Statement of Cash Flows (Alternative Version)
Year Ended September 28, 2019
Cash and cash equivalents, beginning of the year: ₱10,746

OPERATING ACTIVITIES

Activity Amount
Net Income 37,037
Adjustments to Reconcile
Net Income to Cash Generated by
Operating Activities:
Depreciation and Amortization 6,757
Deferred Income Tax Expense 1,141
Other 2,253
Changes in Operating Assets and Liabilities:
Accounts Receivable, Net (2,172)
Inventories (973)
Vendor Non-Trade Receivables 223
Other Current and Non-Current Assets 1,080
Accounts Payable 2,340
Deferred Revenue 1,459
Other Current and Non-Current Liabilities 4,521
Cash Generated by Operating Activities 53,666
INVESTING ACTIVITIES

Activity Amount
Purchases of Marketable Securities (148,489)
Proceeds from Maturities of Marketable Securities 20,317
Proceeds from Sales of Marketable Securities 104,130
Payments Made in Connection with Business
Acquisitions, Net of Cash Acquired (496)
Payments for Acquisition of Intangible Assets (911)
Other (160)
Cash Used in Investing Activities (33,774)

FINANCING ACTIVITIES
Activity Amount
Dividends and Dividend Equivalent Rights Paid (10,564)
Repurchase of Common Stock (22,860)
Proceeds from Issuance of Long-Term Debt, Net 16,896
Other 149
Cash Used in Financing Activities (16,379)

Increase / Decrease in Cash and Cash Equivalents: 3,513


Cash and Cash Equivalents, End of Year: ₱ 14,259
V. Direct Versus Indirect Method

Direct Method: The Direct Method shows the actual cash a business receives and
spends during a specific period. It lists all cash inflows (like money from customers)
and cash outflows (like payments to suppliers or employees) separately, making it
simple to see where the cash came from and how it was used.
This method involves listing all cash receipts and payments related to operating
activities.
Example:
Eewok Corporation
Statement of Cash Flows
For the year ended 12/31/22

Cash flow from operating activities:


Cash Receipts:
Cash Received from Customers 440,000
Cash Payments:
To suppliers 70,000
To employees 120,000
For interest 12,000
For income taxes 9,000

Net cash provided by operating activities 229,000

Indirect Method: The Indirect Method starts with the net income from the income
statement and adjusts it for non-cash items (like depreciation) and changes in
working capital (like increases or decreases in accounts receivable or payable). It
shows how the net income is converted into cash flow from operating activities, but it
doesn’t list actual cash receipts or payments.

This method begins with net income and adjusts for non-cash expenses and
changes in working capital.

Example:
Eewok Corporation
Statement of Cash Flows
For the year ended 12/31/22

Cash flow from operating activities:


Net Income 32,000
Adjustments to reconcile NI to CFO:
Decrease in Accounts Receivable 30,000
Increase in Inventory (40,000)
Depreciation Expense 60,000
Increase in Accounts Payable 20,000
Increase in Wages Payable 20,000
Decrease in Interest Payable (2,000)
Decrease in Income Tax Payable (1,000)
Increase in Unearned Reverse 110,000

Net cash provided by operating activities 229,000


VI. Summary and Conclusions

The Cash Flow Statement is a crucial financial document that enables businesses to
analyze their cash management effectively. By classifying cash flows into operating,
investing, and financing activities, and presenting data through either the Direct or
Indirect Method, companies can provide clear and useful information to
stakeholders. Understanding these methods ensures better financial decision-
making and transparency.
NAMES:
Cailing, Kharl Lyster Dave A.
Paluga, Leomar B.
Sawayan, Stephanny Jay S.
Sawayan, Divine Mia S.
Billones, Roshen Mae

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