CASH FLOW ANALYSIS

PRESENTATION

BY

S.CLEMENT
What is cash ?
 Currency/coins or
 Balances held at bank or
 Short term investments or
 What constitutes cash for a layman
may be different for a finance guy
 In terms of AS3, any thing convertible
in to cash is deemed as cash.
Cash Flow statement
 Cash flow statement- it is a
summary of cash inflows and
outflows during a particular period
for a business unit
 Captures the impact of various
transactions on the cash position of
the firm
 the net change in cash position
 Cash Flow Analysis -
why
 Cash is life line of business
 Cash position is not equal to that of
profit which denotes fund position
 Profit with out cash generation ?
 Financial needs assessed on cash
flows- lenders look at the cash
position of the business unit
 PROFIT
PROFIT VS CASH
CASH

Accounting No such principles

principles
Affected by Not affected
Intangible items
Accrual basis Actual basis

Revenue nature Capital+revenue

Affected by No such treatment

inventory
valuation
Cash flow vs balance
sheet
 Cash flow  Balance sheet
 Cash position  Funds position
 Actual position  Accrual position
 Changes in cash  Changes in A/L
position  Normally for a year
 Shorter or longer  Position on a
period particular day
 Summary of
inflow and outflow
Cash flow Vs Fund flow
 Cash flow
 No such restrictions
 Actual basis
 For shorter period
 Indicates cash position
 Not affected by
intangible items
 Fund flow
 Refers to changes in WC
changes
 Accrual basis
 Normally useful for
longer period
 Indicates fund position
 E.g. debentures
converted in to equity
will not figure in cash
flow.
 Includes intangible items
Non cash transactions
 Depreciation
 Amortization of intangible
expenses
 Profit or loss on sale of fixed assets
 Profit or loss on revaluation of FA
Cash flows
 Inflow  Out flow
 Cash sales  Cash purchases
 Cash from debtors
 Operating expenses
 Taxes & duties
 Sale of fixed  Purchase of FA
assets
 Loans given & repaid
 Interest/dividend  Int.& Dividend paid
received  Redemption of
 Loans Pref.shares and
 Shares/Debenture debentures
s
What decides flow of
cash ?
 Credit worthiness of the firm
 Management policy – liquidity preference,level of
inventory etc
 Terms of purchase and sale – credit given and taken
 Nature of product- consumer goods/capital goods etc
 Market conditions – inflation/deflation
 Relation with the banks
 Efficient management of cash flow
AS – 3 Cash flow
statement
 AS 3 defines cash flow statement – cash flow statement
is a statement setting out cash under different heads of
sources and utilization to determine the requirements of
cash during the given period and to prepare for its
adequate provisions
 Listed companies /company with a turn over of RS 50 cr
and above – CF mandatory
 Cash or its equivalent
Accounting standards -
3
 Cash flow
 Three parts – operating, investing & financing
 Operating – cash flow from Principal revenue
activities
 Investing – Purchase & sale of assets and
raising of funds and redemption of liabilities.
 Financing – Equity & borrowings
 OPERARTING CASH
FLOW
 Operating flows from principal revenue
producing activities
 It includes –
 cash sales & receipts from debtors,
 Payment to suppliers of goods &
employees,
 Receipts from royalties fees etc,insurance
premium,payment and refund of IT .
CF statement as per AS
3
 CF from Operating activity
 PBT

add – depreciation +int.paid+ forex loss

less – Int. received+dividend
received+Forex profit
add - decrease in CA(other than cash) &
increase in CL less incre.in CA & decre. In CL
less - tax paid
add extraordinary items
Net cash from OPR. activity
 Investing cash flow
 Purchase and sale of fixed assets
 Purchase and slae of investments
 Changes in loan position
 Interest income
 Dividend income
 Net cash flow
 Financing cash flow
 Issue of share capital
 Buy back of shares
 Proceeds from long term borrowings
 Repayment of long term borrowings
 Short term loans
 Dividends paid
 Interest paid
 Net cash flow
 Net cash flow
 a) Operating +
 B) Investing +
 C) Financing +
 net increase or decrease in cash
 balance cash &equivalents (opening)
 balance cash &equivalents ( closing)
 RELIANCE INDUSTRIES LTD

Cash flow 2004 2005 2006

(Re in crore)
Operating 11778 17289 10302
Investing (10563) (8162) (12131)
Financing (1137) (5742) 367
Opening 147 224 3609
balance
Net change 77 3385 (1463)
Closing 224 3609 2146
balance
 CF what it reveals
 Segment wise cash flows – surplus or deficit
 management Receivables and payment period
 Ability to fund expansion plan/acquisition of
assets
 Ability to meet debt/interest/dividend obligations
 Reason for differences between cash and income
generation
 Need for external financing
 Useful for credit analysis,bankruptcy
prediction,dividend policy etc
 Thank You

For your patient hearing