Fillable Printable Cash Flow Statement Template
Fillable Printable Cash Flow Statement Template
Cash Flow Statement Template
Cash Flows - 1
CAS H FLOW STATEM ENT
On the statemen t, cash flow s are segregated based on source:
Operating activities: involve the cash effect s of transactions that
enter into the determination of net income.
Investing activities: conc ern with buying (and selling) property, plants,
and equipment (PPE); acquiring and disposing of
securities of ot her entities;
Financing activit ies: include issuance and reacquisition of a firm's debt
and capital stock, and divi dend payments.
• Operating cash flows information indicates the business' ability to
generate sufficient ca sh from its continuing operatio ns
• Investing cash flows information indicates how the business plans to
expand
Information about financing cash flows illustrates how the business plans to
finance its expansion/reward shareholders.
Cash Flows - 2
Cash from operations: The statement of cash flows typically arrives at
cash from operations by adding to (or subtracting from) net income two
types of adjustments:
1. “Non-cash” expenses’
2. Changes in operating (working capital)
e.g.:
Net Income $30,000
Non Cash Expenses:
e.g. Depreciation 5,000
$35,000
Change in operating accounts:
Decrease in inventory 15,000
Cash from operations $50,000
The format illustrated above follows the indirect method of pres entation.
For analytical purposes, (as we shall see), the direct method is more
useful;
Cas h Flows - 3
5.[Cash flow, transactional analysis; 1990 CFA
adapted] The following financial statements are from
the 19X2 Annual Report of the Niagara Company:
Income Statement for Year Ended December 31, 19X2
Sales $1,000
Cost of goods sold (650)
Depreciation expense (100)
Sales and general expense (100)
Interest expense (50)
Income tax expense (40)
Net income $60
Balance Sheets at December 31, 19X1 and 19X2
19X1 19X2
Assets
Cash $50 $60
Accounts receivable 500 520
Inventory 750 770
Current assets $1,300 $1,350
Fixed assets (net) 500 550
Total assets $1,800 $1,900
Liabilities and equit y
Notes payable to banks $100 $75
Accounts payable 590 615
Int erest payable 10 20
Current liabilities $700 $710
Long-term debt 300 350
Def erre d income tax 300 310
Capital stock 400 400
Retained earnings 100 130
Tot a l liabilit ies & eq uit y $1,800 $1,900
Prepare a statement of cash flows for the year ended Decem ber 31, 19X2.
Use the direct method.
19X1 19X2
∆
O
Sales A/R
P
E
COGS Inventory
R
A/P
A
T Sales & General
I
O
Interest Int Payable
N
S
Tax Expense Def Tax
I
N
Depreciation
VESTMENT
PP&E Purchase Fixed Assets
F
Debt Payment
Notes Payable
I
LTD
N
A
Stock Issue
Capital Stock
N
C
Dividend
Ret Earnings
ING
Net Income
Cash Flows - 4
Niagara Company
Sales $1,000
Cost of goods sold (650)
Depreciation expense (100)
SGA (100)
Inte rest expense (50)
Income tax expense (40)
INDIRECT METHOD
Cash from Operations
Net Income 60
Non Cash Items
Depreciation 100
Deferred taxes 10
in operating accounts
A/R (20)
Inventory (20)
Inte rest payable 10
A/P 25
165
Cash for Investment
Capital Ex penditures (150)
Cash for Financing
ST Debt repayment (25)
LT Debt borrowing 50
Dividends (30)
( 5)
Change in Cash 10
DIRECT METHOD
Cash from Operations
Cash collections 980
Cash for inpu ts (645)
Cash SGA (100)
Cash for Interest ( 40)
Cash for Taxes ( 30)
165
Cash for Investment
Capital Ex penditures (150)
Cash for Financing
ST Debt repayment (25)
LT Debt borrowing 50
Dividends (30)
( 5)
Change in Cash 10
Cash Flows - P. 5
Changes Included in Cash Flow from Operating Activities (CFO)
Balance Sheet Account Cash Flow Description
Accounts receivable Cash received from customers
Inventories Cash paid for inputs (materials)
Prepaid expenses Cash expenses
Accounts payable Cash paid for inputs/expenses
Advances from customers Cash received from customers
Rent payable Cash expenses
Interest payable Interest paid
Income tax payable Income taxes paid
Deferred income taxes Income taxes paid
Changes Included in Cash Flow from Investing Activities (CFI)
Balance Sheet Account Cash Flow Description
Property, plant, and equipment Capital expenditures
Proceeds from property sales
Investment in affiliates Cash paid for acquisitions and
investments
Changes Included in Cash Flow from Financing Activities (CFF)
Balance Sheet Account Cash Flow Description
Notes payable Increase or decrease in debt
Short-term debt Increase or decrease in debt
Long-term debt Increase or decrease in debt
Bonds payable Increase or decrease in debt
Common stock Equity financing or repurchase
Retained earnings Dividends paid
The relationship between balance sheet changes and cash flows can be
summarized as follows:
• Increases (decreases) in assets represent net cash outflows (inflows). If an
asset increases, the firm must have paid cash in exchange.
• Increases (decreases) in liabilities represent net cash inflows (outflows).
When a liability increases, the firm must have received cash in exchange.
Cash Flows - P. 6
Converting Indirect Method Cash Flows to Direct Method:
(Creating CFO from FFO)
Cash Flows = Income Statement +/- Balance Sheet Changes
From Customer Sales
∆ A/R
∆ Advances
To Supp liers COGS
∆ A/P
∆ Inventory
For Expenses SG&A
∆ Accrued expense
∆ Prepaid Expense
The Income Statement and the Cash Flow from Operations portion of the Statement of
Cash Flows of the XYZ Compan y follow:
Sales 90,000 Net Income 30,000
COGS 20,000 Add:
Depreciation 10,000 Depreciation 10,000
Wages 12,000 ∆ in A/R 3,000
Rent 5,000 ∆ in A/P 2,000
Interest 3,000 Less:
Taxes 10,000 60,000 ∆ in Inventory (4,000)
30,000 ∆ in Rent Payable (3,000)
∆ in Tax Payable (2,000 )
36,000
Prepare the Cash Flow from Operations using the Direct Method:
Cash Flows - P. 7
Cash Flow Classification Issues
While the classification of cash flows into the three main categories is
important, we must recognize that
classification guidelines can be arbitrary.
Although total cash flow is not subje ct to manipulation
CFO (and CFF and CFI) is affected by re porting methods that alter the
classification of cash fl ows among opera ting, i nvesting, and financing
categories
1. Cash flows involving Property Plant and Equipment
2. Differenc es due to some accounting methods
3. Interest and dividends re ceived
4. Interest paid
5. Noncash transactions
Drawbacks of cash from operations (analyst point of view).
• Cash from operations does not include charges for the use of long-lived
assets; depreciation is added back into income in arriving at cash from
operations.
• Cash from operations does not include cash outlays for replacing old
equipment (required to en sure uninterrupted operating activ ities) .
• Identical firms that make different accounting choices may report different
cash from operations.
Examples:
1. Leasing firms report lower cash from operations than purchasing firms as
lease rentals reduce cash from operations whereas payments for
purchas ing reduce cash from investing ac tivities.
2. Capitalizing expenditures-firms report higher cash from operations than
expensing-firms.
Cash Flows - P. 8
Example:
Assumptions:
Proj ect -3 year life
Cash disbursements m easur e progress.
Year 1 2 3 Total
Cash Receipts 1,000 1,000 1,000 3,000
Disbursements 900 600
300 1,800
∆ cash 100 400 700 1,200
∆ cash cumul 100 500 1,200
INCOME & CASH FLOW
Completed Contract
Year
123Total
Revenues
0 0 3,000 3,000
Expenses
0
0 1,800 1,800
Income
0 0 1,200 1,200
∆ Inventory
(900) (600) 1,500
∆Advances
1,000 1,000 (2,000)
CFO
100 400 700 1,200
Percentage of Completion
Year
123Total
Revenues
1,500 1,000 500 3,000
Expenses
900 600 300 1,800
Income
600 400 200
∆ A/R
(500) 0 500
CFO
100 400 700 1,200
BALANCE SHEET
Completed Contract
Year
123
Cash
100 500 1,200
Inventory
900 1,500 0
Current As s ets
1,000 2,000 1,200
Advances (CL)
1,000 2,000 0
Retained Earnings
0 0 1,200
Lia bi lity & Equity
1,000 2,000 1,200
Percentage of Completion
Year
123
Cash
100 500 1,200
Accounts Receivable
1
500 500 0
Current As s ets
600 1,000 1,200
Advances (CL)
Retained Earnings
600 1,000 1,200
Lia bi lity & Equity
600 1,000 1,200
1
May be called Inventory: Work in
Process at Contract P r ice and may be
reported a t ti mes net of advances
Cash Flows - P. 9
Example:
Assumptions:
Proj ect -3 year life
Up fr ont item (UFI) cost of $1,500 m a y be capitalized or
expensed immediately.
Year 1 2 3 Total
Cash / Income Pre 2,000 2,000 2,000 6,000
"Up front item" 1,500 0
0 1,500
∆ cash 500 2,000 2,000 4,500
∆ cash cumul 500 2,500 4,500
INCOME & CASH FLOW
Expense
Year
123Total
Revenues
2,000 2,000 2,000 6,000
Expenses
1,500
0 0 1,500
Income
500 2,000 2,000 4,500
CFO
500 2,000 2,000 4,500
Capitaliz e / Am orti z e
Year
123Total
Revenues
2,000 2,000 2,000 6,000
Expenses
500 500 500 1,500
Income
1,500 1,500 1,500 4,500
Add Deprec
500 500 500 1,500
CFO
2,000 2,000 2,000 6,000
CFI
(1,500) 0 0 (1,500)
∆ Cash
500 2,000 2,000 4,500
BALANCE SHEET
Expense
Year
123
Cash
500 2,500 4,500
UFI
0 0 0
Assets
500 2,500 4,500
Retained Earnings
500 2,500 4,500
Lia bi lity & Equity
500 2,500 4,500
Capitaliz e / Am orti z e
Year
123
Cash
500 2,500 4,500
UFI
1,000 500 0
Assets
1,500 3,000 4,500
Retained Earnings
1,500 3,000 4,500
Lia bi lity & Equity
1,500 3,000 4,500
Cash Flows - P. 10
FREE CASH FLOWS
To overcome these problems, analysts typically use free cash flows
as an alternative measure for cash from operations defined as:
CFO less net cash outla ys for the repl acement of operating capacity.
Although the definition implies that only net investment in replacing old
equipment is subtracted from cash from operations, in practice total
investment appearing in the cash used by investing activity section of the
statement of cash flows is used. This may overstate (understate) the net
investment in replacing equipment because some of the investment
reported under cash used by investing activities may represent expansion
(downsizing). Thus, the free cash flow may overstate or understate true
cash from operations.
Free cash flows still shares two drawbacks of cash from operations
• Interest and dividends received, which are classified as operating cash
flows, should be reclassified (using the after-tax numbers) as investing
cash flows. This has the advantages of reporting operating cash flows
that reflect only operating activities of the firm's core business
• Interest payments, which are classified as operating cash flows, should
be reclassified (using the after-tax numbers) as cash used by financing
activities. This has the advantage of reporting identical cash from
operations by two firms with different capital structure but otherwise
identical.
• Significant Noncash transactions
Cash Flows - P. 11
Alternatively CFO provides information as to
Liquidity
• The cash flow statement provides information about the firm's liquidity
and its ability to finance its growth from internally generated funds.
The Effect of Accounting Policies
• The cash flow statement allows the analyst to distinguish between the
actual events that have occurred and the accounting assumptions that
have been used to report these events.
The (Validi t y) of the Going Concer n Assumpti on
• the statement of cash flows serves as a “check” on the assumptions
inherent in the income statement.
Analysis of Cash Fl ow Trends
The data con tained in the statement of cash flow s can be used to
1. Revie w individual cash flow items for analytic significance
2. Examine the trend of different cash flow components over time and their
relati onship to relat ed income stat ement items.
3. Consider the interrelationship between cash flow components over time
