Cash Flow Statement
From EDeskWiki
| Statement of Cash Flow - Simple Example for the period 12/31/2005 to 12/31/2006 | |
|---|---|
| Cash flow from operations | $4,000 |
| Cash flow from investing | $(1,000) |
| Cash flow from financing | $(2,000) |
| Net increase (decrease) in cash | $1,000 |
In financial accounting, a cash flow statement is a financial statements|financial statement that shows incoming and outgoing money during a particular period (often monthly or quarterly). The statement shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing, and financing activities. As an analytical tool the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7, is the International Accounting Standard that deals with cash flow statements
People and groups interested in cash flow statements include:
- Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
- Potential lenders/creditors, who want a clear picture of a company's ability to repay
- Potential investors who need to judge whether the company is financially sound
- Potential employees or contractors who need to know whether the company will be able to afford compensation
Contents |
Operating activities
Operating activities include the Production, costs, and pricing|production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising and shipping the product.
Items which are added back to the net income figure (which is found on the Income Statement) to arrive at cash flows from operations generally include:
- Depreciation
- Deferred tax
- Amortization
- Accounts payable
Investing activities
Investing activities focus on the purchase of the long-term assets a company needs in order to make and sell its products, and the selling of any long-term assets that are no longer needed by the company.
Items under Investing Activities include:
- Capital expenditures, which include purchases (and sales) of property, plant and equipment
- Investments
Financing activities
Financing activities include the influx of cash from investors such as banks and shareholders, as well as the outflow of cash to investors as the company generates income. Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement.
Items under the Financing activities section include:
- Dividends paid
- Sale or repurchase of the company's stock
- Net borrowings
Preparation methods
Direct Method
The direct method for creating a cash flow statement includes major classes of gross cash receipts and payments. This method starts with revenues and expenses, while also including Current Assets as well as Current Liabilities. The cash flow for this example is +$40.00:
| Transaction | In (Debit) | Out (Credit) |
|---|---|---|
| Incoming Loan | +$50.00 | |
| Sales (which were paid for in cash) | +$30.00 | |
| Materials | -$10.00 | |
| Labor | -$10.00 | |
| Purchased Capital | -$10.00 | |
| Loan Repayment | -$5.00 | |
| Taxes | -$5.00 | |
| Total cash flow..............................+$40.00 | ||
Indirect Method
The indirect method uses net income as a starting point, then makes adjustments for all transactions for non-cash items.
Citigroup Incorporated cash flow example:[1][2][3]
| Citigroup Cash Flow Statement | |||
| Period ending | 12/31/2006 | 12/31/2005 | 12/31/2004 |
| Net income | 21,538,000 | 24,589,000 | 17,046,000 |
| Operating activities, cash flows provided by or used in: | |||
| Depreciation and amortization | 2,790,000 | 2,592,000 | 2,747,000 |
| Adjustments to net income | 4,617,000 | 621,000 | 2,910,000 |
| Decrease (increase) in accounts receivable | 12,503,000 | 17,236,000 | -- |
| Increase (decrease) in liabilities (A/P, taxes payable) | 131,622,000 | 19,822,000 | 37,856,000 |
| Decrease (increase) in inventories | -- | -- | -- |
| Increase (decrease) in other operating activities | (173,057,000) | (33,061,000) | (62,963,000) |
| Net cash flow from operating activities | 13,000 | 31,799,000 | (2,404,000) |
| Investing activities, cash flows provided by or used in: | |||
| Capital expenditures | (4,035,000) | (3,724,000) | (3,011,000) |
| Investments | (201,777,000) | (71,710,000) | (75,649,000) |
| Other cash flows from investing activities | 1,606,000 | 17,009,000 | (571,000) |
| Net cash flows from investing activities | (204,206,000) | (58,425,000) | (79,231,000) |
| Financing activities, cash flows provided by or used in: | |||
| Dividends paid | (9,826,000) | (9,188,000) | (8,375,000) |
| Sale (repurchase) of stock | (5,327,000) | (12,090,000) | 133,000 |
| Increase (decrease) in debt | 101,122,000 | 26,651,000 | 21,204,000 |
| Other cash flows from financing activities | 120,461,000 | 27,910,000 | 70,349,000 |
| Net cash flows from financing activities | 206,430,000 | 33,283,000 | 83,311,000 |
| Effect of exchange rate changes | 645,000 | (1,840,000) | 731,000 |
| Net increase (decrease) in cash and cash equivalents | $2,882,000 | $4,817,000 | $2,407,000 |
References
- ↑ Yahoo finance report on Citigroup
- ↑ Citigroup finance report
- ↑ Bodie, Z., Kane, A., and Marcus, A. J. Essentials of Investments, McGraw Hill Irwin, 2004, p.455. ISBN 0 07 251077 3
