Cash Flow Statement: What It Is and Examples

Cash Flow Statement

A cash flow statement (CFS) is the financial statement used to measure inflow and outflow of cash. Actual cash flow of the firm is the most important item that can be extracted from financial statements. 

CFS helps to explain the change in accounting cash and cash equivalents. It helps in determining a company’s performance by providing information on its financial health and efficiency. CFS evaluates a firm’s ability to create enough cash flow to cover its operational costs and pay off its debt. In other words, it gauges how well a corporation manages its financial situation. The three main financial statements are Income statement, Balance sheet and Cash flow statement.

Importance of Cash Flow Statement

Provides information on spending:  

An understanding of the company’s primary payments to creditors can be obtained from a cash flow statement. It also provides cash transactions that are recorded but not shown in the other financial statements. These include purchase of capital goods, creditors, and purchasing inventory. 

Assists you in focusing on making cash: 

Profit, which generates cash, is essential for a firm’s success. However, there are plenty of alternative ways to earn cash. For example, when a business finds a means to reduce its equipment costs, it generates cash. It generates cash each time it collects receivables from clients more quickly than usual.

Maintains ideal cash balance: 

The ideal amount of cash on hand is maintained with the help of a cash flow statement. Determining if an excessive amount of cash is idle or whether there is an excess or shortfall in finances is crucial for the organization. If the company has extra cash on hand, it can invest it in stock or purchase merchandise. 

Helps in short term planning:

A profitable company must always have enough cash on hand to pay for impending bills and other short-term commitments. To make important decisions, a financial manager might examine cash inflows and outflows from previous transactions. Seeing a cash shortfall to pay off debts or establishing a base to apply for bank credit are a few situations where decisions must be made depending on cash flow.

How to determine Cash Flow Statement

The main components of Cash flow are- Cash flow from operating activities, Cash flow from investing activities and Cash flow from financing activities.

Cash flow from operating activities

The main sources of revenue for the organization are its operating activities. Cash flows related to sales, purchases, and other expenses are usually included in the cash flow from operations. The chief financial officer (CFO) of the firm decides whether to present operating cash flow directly or indirectly:

Direct presentation: A list of cash flows, including cash from sales and cash out for operating expenses, is used to show operating cash flows. Although indirect presentation is more common, this approach is rarely used.

Indirect presentation: Reconciliation of profit to cash flow is how operating cash flows are presented indirectly. Usually, we assume that the indirect method is applied. Cash flow also includes non cash items to balance the profits of the firm.

Add: Depreciation and Amortization

Depreciation and Amortization are the expenses incurred due to the loss of value of the asset over a period of time. Depreciation includes tangible assets such as land, building, machinery, whereas amortization involves intangible assets such as goodwill, patents, software, etc.

They are subtracted from the income statement and as they are non-cash expenses therefore added back in the cash flow statement to adjust net income. 

Add/subtract: Changes in working capital

The difference between current assets and current liabilities is the change in working capital. The increase in current assets represents the outflow of cash, for example, increase in debtors. Hence, they are subtracted from the cash flow statement whereas decreases in assets are added to the cash flow statement as they denote the inflow of cash. 

In contrast, when current liabilities increase, say, accounts payable, they are added to the cash flow statement and subtracted when there is a decrease in current liabilities.

Cash flow from investing activities

Cash flow from investing activities includes changes in non-current assets. Examples of non-current assets are long term investments, land, machinery, property, plant and equipment. 

Subtract: Increase in non-current assets

Capital expenditures are amounts of money used to buy property, plant and equipment. Capital expenditures might take the form of buying new office supplies like printers and computers for an expanding workforce, or they can involve buying new property and a building to house the company’s operations and logistics. These things are required to keep the business functional. Since these investments represent a financial outflow, they will have a negative effect on the total amount of cash raised by all activities. 

Cash flow from financing activities

Changes in the company’s capital structure are included in cash flow from financing activities i.e. changes in non-current liabilities and changes in short term borrowings. The payment of dividends is also a part of financing activities. 

Add: Increase in non current liabilities

Non-current liabilities such as long-term loans, bonds payable, long term lease leads to inflow of cash and therefore they are added in the cash flow statement.

Subtract: Payment of dividends

Payment of dividends is reducing the cash and hence it is a cash outflow. Interest is paid to the bondholders so it will be subtracted from the cash flow statement. 

Cash Flow Statement Example- Apex Auto Components Pvt. Limited

	Statement of profit and loss ending on 31st March(Rs. Million)
Sl. No.	Particulars	2015	2016	2017	2018	2019	2020
1	Revenue
1.1	Gross Sales	9548	10980	12627	15153	18183	21820
1.2	Excise Duties/GST	70	85	100	110	120	135
1.3	Net Sales	9478	10895	12527	15043	18063	21685
1.4	Other Income	7	10	12	14	18	25
1.5	Total Revenue	9485	10905	12539	15057	18081	21710
2	Expenses
2.1	Operating Expense
2.1.1	Consumption of Raw Materials	6400	7415	8493	10172	12121	14502
2.1.2	Consumption of Stores and Spares	130	149	172	206	248	297
2.1.3	Power and Fuel	570	655	753	905	1086	1304
2.1.4	Rent	300	345	397	476	572	686
2.1.5	Repair & Maintenance	5	6	7	8	10	11
2.1.6	Insurance & Taxes	10	11	13	16	19	23
2.1.7	Other Manufacturing Expense	37	43	49	59	71	85
2.1.8	Wages and Labour Compensation	200	300	375	402	587	776
2.1.9	Depreciation & Amortization Expenses	416	165	145	200	188	168
2.2	Purchase of Stock in Trade	10	11	13	16	19	23
2.3	Change in Inventories
2.3.1	WIP	35	(35)	(100)	(130)	(169)	(250)
2.3.2	Finished Goods	90	(90)	(15)	(18)	(22)	(26)
2.4	Salaries	390	378	405	534	537	574
2.5	Finance Cost (Interest)	290	309	264	325	442	632
2.7	Miscellaneous General & AdministrativeExpenses	64	75	85	100	115	135
3	Total Expenses	8947	9737	11056	13271	15824	18940
4	Profit/(Loss) Before Tax	538	1168	1483	1786	2257	2770
5	Provision for Tax	182	370	381	449	547	656
6	Profit/(Loss) After Tax	356	798	1102	1337	1710	2114
7	Dividend (Including DDT)	0	0	0	0	0	0
8	Retained Profit/ (Loss)	356	798	1102	1337	1710	2114
	Balance Sheet as at 31st March (Rs.Million)
Sl. No.	Particulars	2015	2016	2017	2018	2019	2020
A	Equity & Liabilities
A1	Shareholders’ Funds
A1.1.	Share Capital	20	20	20	20	40	40
A1.2	Reserves & Surplus	1512	2310	3412	4749	6459	8573
A1.3	Total Shareholders Funds	1532	2330	3432	4769	6499	8613
A2	Non Current Liabilities
A2.1	Long Term Loans	1195	819	619	769	1069	869
A2.2	Loans & Advances from Related Parties	60	80	80	80	80	80
A2.3.	Other Long Term Liabilities (Unsecured Loans)	125	242	242	242	242	242
A2.4	Long Term Provisions	43	48	48	48	48	48
A.2.5	Total Non Current Liabilities	1423	1189	989	1139	1439	1239
A3	Current Liabilities
A3.1	Bank Borrowings for Working Capital	600	914	914	914	1064	1214
A3.2	Other Short Term Borrowings	300	300	300	300	300	300
A3.3	Trade Payables	840	2385	3885	5285	6985	8785
A3.4	Short Term Provisions	72	75	80	90	105	123
A3.5	Other Current Liabilities	35	60	90	125	165	210
A3.6	Total Current Liabilities	1847	3734	5269	6714	8619	10632
	Total Liabilities & Equity	4802	7253	9690	12622	16557	20484
B	Assets
B1	Non Current Assets
B1.1	Gross Fixed assets	3172	3372	3372	3972	3972	3972
B.1.2	Accumulated Depreciation	1599	1764	1909	2109	2297	2465
B1.3	Net Fixed Assets	1573	1608	1463	1863	1675	1507
B1.4	Capital Work in Progress	0	0	0	0	0	0
B1.5	Intangible Assets	0	0	0	0	0	0
B1.6	Non-Current Investments	30	30	30	30	30	30
B1.7	Long Term Loans & Advances	510	510	510	510	760	760
B1.8	Other Non Current Investments	40	40	40	40	40	40
B1.9	Total Non Current Assets	2153	2188	2043	2443	2505	2337
B2	Current Assets
B2.1	Cash and Cash Equivalents	141	607	1446	1450	1992	2016
B2.2	Inventories
B2.2.1	Raw Materials	701	1201	1301	1451	1651	1901
B2.2.2	WIP	85	120	220	350	519	769
B2.2.3	Finished Goods	180	270	285	303	325	351
B2.3	Trade Receivables	1510	2310	3210	4710	6710	9510
B2.4	Short Term Loans & Advances	30	530	1130	1830	2730	3430
B2.5	Other Current Assets	2	27	55	85	125	170
B2.6	Total Current Assets	2649	5065	7647	10179	14052	18147
	Total Assets	4802	7253	9690	12622	16557	20484
	Cash Flow Statement
1	Cash Flow from Operation
1.1	PAT		798	1102	1337	1710	2114
1.2	+Depreciation & Amortization		165	145	200	188	168
1.3	+Increase in Current Liabilities (Excluding Short term Borrowings)		1573	1535	1445	1755	1863
1.4	-Increase in Current Assets (other than Cash & Cash Equivalents)		1950	1743	2528	3331	4071
1.5	Total Cash Flow from Operating Activities		586	1039	454	322	74
2	Cash Flow From Investments
2.1	-Increase in Gross Block		200	0	600	0	0
2.2	-Increase in Capital WIP		0	0	0	0	0
2.3	-Increase in Intangible Assets		0	0	0	0	0
2.4	-Increase in Non Current Investments		0	0	0	0	0
2.5	-Increase in Long Term Loans & Advances		0	0	0	250	0
2.6	-Increase in Other Non Current Assets		0	0	0	0	0
2.7	Total Cash Flow from Investments		-200	0	-600	-250	0
3	Cash Flow from Financing
3.1	+Increase in Share Capital		0	0	0	20	0
3.2	-Payment of Dividends		0	0	0	0	0
3.3	+Increase in Non Current Liabilities		-234	-200	150	300	-200
3.4	+Increase in Short Term Loans		314	0	0	150	150
3.5	Total Cash Flow from Financing Activities		80	-200	150	470	-50
4	Total Cash Flow during the Period		466	839	4	542	24
5	Opening Cash & Cash Equivalents		141	607	1446	1450	1992
6	Closing Cash & Cash Equivalents		607	1446	1450	1992	2016

What is CashFlow Statement: Conclusion

To comprehend the company’s financial status, it is important to grasp several forms of cash flow. Operating cash flow is the amount of money created from operations before capital expenditures and working capital requirements are subtracted. Generally, it should be positive; if operating cash flow is negative for a long period of time, the company is having problems funding its operations because it is not making enough money. It will often be negative. During a period of rapid business expansion, fixed asset and inventory expenditures may surpass cash flow from sales. 

To conclude, the cash flow statement offers important information about the creation, use, and general financial health of a business. Stakeholders can decide on investment, financing, and operational plans with knowledge by examining the cash flow statement’s important elements and patterns. 

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