Assignment for you

 How to prepare cash flow statement?

Below is a breakdown of each section in the cash flow statement. While each company will have its own individual items, the general layout is generally the same. This guide will give you a good overview of what to look for when analyzing a company.

No. 1 Operating Cash Flow

Cash flow statements start from cash flows from operating activities. It starts with net income or loss, followed by adding or subtracting that amount to adjust net income to total cash flow figures. What is added or subtracted is the change in the account balance of the items contained in current assets and liabilities on the balance sheet, as well as non-cash accounts (for example, stock-based compensation). Then we get to the cash version of the company’s net income.

Net income

This number is the lowest point of the income statement. Net income or earnings represent a company's profit over a period of time. It is calculated by taking the total income and subtracting from them cogs and total expenses which include SG & A, amortization and amortization, interest, etc.

Plus: Depreciation and Depreciation (C&A)

The value of various assets decreases over time used in business. As a result, D and A are expenses that divide the cost of assets over a useful life. Depreciation involves tangible assets such as buildings, machinery and equipment, while depreciation involves intangible assets such as patents, copyrights, goodwill and software. D&A reduces net income in the income statement. However, we add this to the cash flow statement to adjust net income because these are non-cash expenses. In other words, there are no cash transactions involved.

Less: Working capital change

Working capital represents the difference between a company's current assets and current liabilities. Any change in current assets (other than cash) and current liabilities affects the cash balance in operating activities.

For example, when a company buys more stock, its current assets increase. A positive change in inventory is deducted from net income because it is seen as cash flow. It is the same case for an acceptable account. As it grows, it means companies are selling their goods on credit. There are no cash transactions, so accounts receivable are also deducted from net income.

On the other hand, if the current responsible goods such as accounts have increased significantly, this is considered as cash flow because the company has more cash to keep in its business. This is then added to net income.

Cash from transactions

Once all adjustments have been made, we arrive at the cash provided by the company's operating activities. This is not a substitute for net income, but a summary of the cash flow from the company's core business.

No. 2, cash flow investment

This category in the statement of cash flows refers to cash flows from investment activities and reports on capital expenditure (CapEx) and long-term investments. CapExcan refers to the purchase of plant assets or equipment. Long-term investments can include debt and equity instruments of other companies. Another important element found here is the acquisition of another business. An important point to remember is that long-term asset changes in the balance sheet are reported in the investment activity of the cash flow statement.

Investment in real estate and equipment

These CapEx investments could mean buying new office equipment such as computers and printers for a growing number of employees, or buying new land and buildings for the company's business and logistics operations. These items are essential for the company to function. These investments are cash flow and therefore will have a negative impact when we calculate the net cash from all activities. Learn how to calculate CapEx with the CapEx formula.

Cash from investment

This is the total amount of cash provided by (used in) the investment activity. In our example, we have a net outflow for each year.

No. 3 Financing Cash Flow

This category is called cash flows from financing activities and reports on the issuance or purchase of company shares and securities, as well as any dividend payments. Changes in long-term debt and shareholders' equity in the balance sheets are reported in financing activities.

Debt settlement

Debt issuance companies are a way to finance their operations. The more cash, the better because it will be able to expand quickly. Unlike equity, debt issuance does not provide any proprietary benefits in the company, so it does not weaken the shareholders' equity. Debt settlement is a cash flow because the company finds that investors are willing to act like lenders. However, when these investors are repaid, then the debt repayment is cash flow.

Issuance (settlement) of shares

This is another way of financing a company’s operations. Unlike liabilities, shareholders hold certain shares in the business in exchange for money given to the company for use. Earnings

 Future futures must be shared with these shareholders or investors. Equity issuance is an additional source of cash, so it is a cash flow. Instead, equity repayment is cash flow. This is a repurchase through equity cash payments from its investors and thereby increasing the number of shares held by the company itself.

Cash from financing

This is called cash provided by financing activities. Cash received from financing is calculated by summing all cash flows and outflows related to the exchange of long-term debt and shareholders' equity accounts.

No. 4 Cash Balance

The final section on the statement of cash flows is the reconciliation of the total cash position attached to the balance sheet. This is the last piece of the puzzle when linking the three financial statements.

Net increase (decrease) in cash and close of cash balance

Once we have a cash balance for each section of the cash flow statement, we sum it all up to determine the increase or decrease in cash flow over time. We then take this amount and add it to the opening cash balance to reach the final cash balance. This amount will be reported in the balance sheet statement under the current assets section.

Open a cash balance

Open balance is last year's cash balance. We can find this amount from last year's cash flow statement and balance sheet statement.

Real life example of cash flow statement (Amazon)

The following is an example of Amazon's 2016 statement on cash flow. As you can see, the orange rectangle has three definite sections that add up to the total change and the end of the period cash position. To take a closer look, you can download Amazon Financial Statements here or you can check out the CFI Advanced Financial Modeling course on Amazon.

Source៖ amazon.com

 

How to make a cash flow statement by financial model 

The cash flow statement in a financial model in Excel shows both historical and project data. Before this model can be developed, we first need to have a result statement model and balance sheet built into the FS because its data will drive the cash flow statement model.

 

Photo: IPI Financial Model Training. As we have seen from our financial model example, it displays all historical data in blue while the predicted data appears in black. The figure below is just a general guideline on how to retrieve historical data to the password for range entries. In addition, it shows where we find in the financial model, calculations or reference data to complete the forecast period.