Menu
Home
Log in / Register
 
Home arrow Business & Finance arrow Executive finance and strategy

The structure of a statement of cash flow

The example shown below is an introduction to statements of cash flows which aims to help comprehension of businesses from a cash perspective by focusing on three groupings of cash flow:

- from trading or operations;

- into or from investing;

- from financing.

Thus the above sources and uses may be grouped as shown in Table 8.9.

TABLE 8.9 Cash flow analysis - stage 3: the statement of cash flow

Cash flow analysis - stage 3: the statement of cash flow

Would seeing the analysis in these groupings cause you to change your views?

- Operating is consuming cash, principally through poor working capital management, but of course this could be the result of tactics and an overall growth strategy.

- There has clearly been deliberate net investment in PPE.

- Financing has come from the opening cash balance and from borrowing.

The figures given here are based on a real case. The profitable company had deliberately accumulated the 1,086 cash with a view to opening a new production line. PPE was needed, and inventories were required to sell to new customers who had to be enticed with favourable credit terms; the new and wary suppliers of materials demanded prompt payment. In the next year, inventories could be managed more effectively, as satisfied customers were prepared to pay more promptly and suppliers gave more credit for the steady business they were getting.

These cash movements across this one year are the result of a planned strategy.

Published statements of cash flow

The identification of cash flows from profitable (or into loss-making) operations as well as the use of cash flows into investment or arising from disposing of assets and investments and the consequential movements in financing or funding is important and has led to the IASB and FASB requirement for a statement of cash flows to be included in published accounts (IAS 7 FASB Statement 95).

The objective of IAS 7 is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows. This classifies cash flows during the period from operating, investing and financing activities.

 
Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
 
Subjects
Accounting
Business & Finance
Communication
Computer Science
Economics
Education
Engineering
Environment
Geography
Health
History
Language & Literature
Law
Management
Marketing
Mathematics
Political science
Philosophy
Psychology
Religion
Sociology
Travel