Cash flow & fund flow statement

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1. 1 CASH FLOW & FUND FLOW STATEMENT

2. CASH FLOW Meaning Applicability Cash and Cash equivalents Categories of Cash Flow Statement Methods Advantages Limitations Non-cash transactions FUND FLOW : Meaning Format Importance Limitations Diff. between Cash Flow & Fund Flow 2 Index

3. CASH Cash in hand Demand Deposits in Banks Cash Equivalents Cash equivalents are short-term, highly liquid investments, readily convertible into cash and which are subject to insignificant risk of changes in values. 3 Meaning

4. Flow : flow means flow of cash from business to economy and economy to business. Statement : statement is a Performa prescribed by C harted Accountant Act,1948. Thus, cash flow statement is a statement of inflows(sources) and outflows(uses) of cash and cash equivalents in an enterprise during a specified period of time. 4

5. This standard applies to the enterprises : Having turnover more than Rs. 50 Crores in a financial year ; Listed companies : Cash flow statement of listed companies shall be presented only under the indirect method as prescribed in AS 3 5 Applicability

6. Cash Equivalents Held for meeting short term commitments It is readily convertible into known amounts of cash It has a very insignificant risk Short maturity (say 3 months maximum ) Cash flows exclude Movements between cash and cash equivalents Cash management includes the investment of excess cash in cash equivalents 6 Cash and Cash Equivalents

7. Three main categories of cash inflows and cash outflows : Operating activities : Operating activities are the principal revenue generating activities of the enterprise. Investing activities : Include the acquisition and disposal of long-term assets and other investments not included in cash equivalents . Financing activities : Financing activities are activities that result in change in the size and composition of the owner’s capital. 7 Categories of Inflows and Outflows

8. Direct Method : Income Statement items are converted to cash flows individually Indirect Method Net income or loss is adjusted for accruals such as accounts receivable and payable, and for non-cash expenses such as depreciation reconciliation of the accrual based and cash based accounting 8 Determination of Cash Flows From Operating Activities

9. 9 Cash Flow and Benefits

10. 10 Limitations

11. These should be excluded from the cash flow statement These transactions should be disclosed in the financial statements. Examples Acquisition of assets by assuming directly related liabilities Acquisition of an enterprise by means of issue of equity sshares Conversion of debt to equity 11 Non-Cash Transactions

12. F und means Working Capital. 12 Working Capital Current Assets Current Liabilities Fund

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14. Sources of Funds Amount Application of Funds Amount Issue of share capital ……. Redemption of pref. share …….. Issue of debenture ……. Redemption of debenture …….. Raising of long term loan ……. Payment of long term loan …….. Sales of fixed assets ……. Purchase of fixed assets …….. Interest received ……. Interest paid …….. Dividend received ……. Dividend paid .……. Refund of Taxes ……. Payment of Taxes …….. Decrease in working capital ……. Increase in working capital …….. Fund from operation ……. Fund lost in operation .……. TOTAL …….. TOTAL …….. 14 Format Of Fund Flow Statement

15. Preparation of Fund Flow Statement

16. Identification & Analysis of changes in working capital Evaluation of firm’s financing Knowing the overall creditworthiness of a firm An instrument for allocation of resources 16 Importance of Fund Flow Statement

17. Lacks originality because it is only rearrangement of data appearing in accounts books. Indicates only the past position and not future. Indicates fund flow only in a summary form and does not show various changes which take place continuously. When both the aspects of a transaction are current , they are not considered. When both the aspects of a transaction are non-curren t, even then they are not included in this statement. Not an ideal tool for financial analysis. 17 Limitations

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19. 19 Thank you