1. Cash in the Annual Accounts
The Cash Flow Statement

2. The Cash Flow Statement
Recall
Two major financial statements covered last semester
Profit and Loss Account
Balance Sheet
There is a third
The Cash Flow Statement

3. Cash Flow Statement
Richard O’Callaghan

4. Why a Cash Flow Statement?
Remember, profit and cash are not the same thing
Profit measures activity
Cash-flow measures….. Cash
Because profit by itself does not provide the full picture, a “full” set of accounts includes a Cash Flow Statement
The Cash Flow statement is a statement of cash in and cash out for the year and provides the net cash position (i.e. it answers the question “how much money do we have?”)

5. Cash Flow Statement Record of cash received and cash paid out
Transactions that do not result in the flow of cash (e.g. depreciation/provisions)
It does not matter whether the cash is used for capital items or operational expenses - if it involves cash then it appears in the Cash Flow Statement

6. Content of a Cash Flow Statement
Richard O’Callaghan

7. There are only three major headings in a Cash Flow Statement
Cash Flows from Operating Activities
Cash Flows from Investing Activities
Cash Flows from Financing Activity
The Cash Flow Statement also:
reconciles the net profit with the cash position
provides the change in cash during the year
includes final / closing cash position at year end (should match the bank and cash figure in the Balance Sheet)

8. Cash Flow from Operating Activities
This is the cash in and/or out from the “normal” business activities of the firm
While it is possible to measure cash flow directly (see across) this is not how things are normally done
The usual starting point is the companies Profit
Cash Flow Statement Direct Method €
Collections from trade and other Debtors X
Payments to suppliers (X)
Payments to employees (X)
Payments for Corporation Tax (X)
Payments related to retirement benefits (X) .
Cash Flow From Operating Activities X / (X)

9. Indirect Method
Unfortunately, net cash from operating activities is not usually presented using the Direct Method
It is actually derived by first adjusting the companies profit figure for non-cash items and cash transactions that belong elsewhere in the Cash Flow Statement
Non-Cash Items are accounting transactions that do not require the movement of cash.
Examples:
Depreciation
Changes in Debtors or Creditors
Provisions for bad debt and any other similar provisions
These are removed from the profit figure to get to a cash figure

10. Cash Flow from Operating Activities
Profit for the Financial Year X
Adjustments
Depreciation X - added back as it reduces profit
Amortisation X - added back as it reduces profit
Profit on disposals (X) - subtracted as it increases profit
Interest paid X - added back as it appears elsewhere
Interest received (X) - subtracted as it appears elsewhere
Taxation X - added back as it appears elsewhere
Decrease / (Increase) in Debtors (X) - or X - (X) for increase
Decrease / (Increase) in Stock X or (X) - X for decrease
Increase / (Decrease) in Creditors X or (X) - (X) for decrease
Cash from Operations X

11. Cash Flow from Operating Activities
Once the adjustments we have a figure called “Cash from Operations”
This figure has two transactions applied against it to come up with the “Net Cash from Operating Activities” figure ….
Increase / (Decrease) in Creditors X
Cash from Operations X
Interest paid (X)
Income Taxes paid (X)
Net Cash Generated from Operating Activities X

12. Cash Flows from Investing Activities
This is the cash used to purchase Fixed Assets and the money received from any form of investment ….
Net Cash Generated from Operating Activities X
Proceeds from the sale of equipment X
Purchases of property, plant and equipment (X)
Purchases of intangible assets (X)
Interest received X
Net cash from Investing Activities X

13. Cash Flows from Financing Activities
Represents the cash flows from the means that the company has used to finance itself ….
Net cash from Investing Activities X
Issue of Ordinary Share Capital X
Repayment of Borrowings (X)
Dividends Paid (X)
Net Cash Used in Financing Activities (X)

14. Final Cash Position
The cash flow from Operating Activities, Investing Activities and Financing Activities represents the full cash flows for the year
Therefore, all that is left to consider is the net cash position for the year and the cash balance at the endo of the year ….
Net increase/(decrease) in cash and cash equivalents X
Cash and cash equivalents at the beginning of the year X
Cash and Cash equivalents at the end of the year X