THE BASIC FINANCIAL STATEMENT
The Cash Flow Statement
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Today’s Lecture
• Basic Excel
• Understand the elements of the Cash Flow Statement
?
Where does it go?
• Make a simple Cash Flow Statement with MS Excel
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Excel Basics – Graphs
Graphs are easy to
make. E.g. type
some numbers and
select them.
Then go to the
graph tool button
and click on it.
A handy wizard
will pop up that
gives you many
options but for
starters you can
just click next.
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Excel Basics – Graphs
And this is the
result that we get.
The graph can be
moved around and
of course there are
many options for
labeling and
representing the
data.
When selecting a graph by clicking on it, the data are
highlighted by a colored box (blue in this case).
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Excel Basics – Solver
The Solver can be found in the Tools menu of Excel. If
it’s not there, it can be installed by going to the “Addins” menu item and selecting the Solver Add-in.
The power of the
solver is that is can do
mathematics without
formulas. This is
extremely useful
when formulas are
difficult or impossible
to find.
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Excel Basics – Solver
For example, we have
the situation to the
left and we would like
to find a value for cell
B2 such that our
calculation in cell B5
gives 2.5 as a result.
Of course, we could
easily do this by
deriving a simple
formula.
But this time, let us
use the solver.
Go to the Tools menu and click on Solver.
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Excel Basics – Solver
Select the Target Cell,
the value and choose
which cell should be
changed.
Click Solve….
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Excel Basics – Solver
The Solver will try to
find a solution and
automatically enter it
in the spread sheet.
A box asks you to
confirm the solution.
Click OK and we’re done.
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Excel Basics – If-Then
The If-then statement
allows you to do logical
tests.
In this case we compare
two numbers and indicate
whether the first number
is bigger or smaller.
The syntax of the if-then
statement is given by:
Note the quotation marks. These
indicate that the text between
them is a so-called string, i.e.
actual text and not the name of a
variable or so.
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Cash Flow
Help!
?
Where does it go?
?
Holiday ..
In daily life, we all know the experience .. Where did the
money go? It’s good to know!
In business it’s essential to know!
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Cash Flow Statement
The Cash Flow Statement is the third of the three basic
financial statements. It is closely related to matters
concerning the daily operation of a company.
The Cash Flow Statement shows where the money goes
(out-flows) and where it comes from (in-flows) during a
certain period of time.
It also shows the net in- or out-flow during that period of
time. This is an extremely important number in the
financial management of a company!
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Cash Flow Statement
One way to look at the difference between the three basic
financial statements.
While the Balance Sheet shows cash balances and the
Income Statement where the money comes from or goes
to, the Cash Flow Statement shows why cash increased or
deceased.
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Cash Flow Statement
In other words:
+
Beginning Cash Balance
-
Cash Out-Flows (Uses)
+
Cash In-Flows (Sources)
=
Ending Cash Balance
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Cash Flow Statement
The Cash Flow Statement is usually divided into three
sections:
• Cash Flows from Operations
These are the cash flows generated by the daily running of the
business. E.g. the buying and selling of goods.
• Cash Flows from Investments
Usually, with investments one means here fixed assets like plant
and equipment.
• Cash Flows from Financing
Loans play an important part in most businesses. Here, mainly, the
cash flows related to the repayment of loans or the taking up of new
loans are listed.
This item could also e.g. contain the cash flows from issuing stock. 14
A Simple Cash Flow Statement
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B C D E
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Ever Profit International
Cash Flow Statement for the Year ended Dec 31, 1999
Cash Flows from Operations
Receipts
Interest received from Investment
Payments from Customers
Others
Disbursements
To suppliers
To employees
Others
Net Cash Flow from Op. Activites
Cash Flows from Investing Activities
Purchase of Equipment
Sale of Equipment
Net Cash Flow from Inv. Activities
Cash Flows from Financing Activities
Taking up of a long term loan
Payment of Dividends to Share Holders
Net Cash Flow from Fin. Activities
Net change in Cash Balance
200
12000
340
-4800
-5000
-200
2540  =Sum(G7:G14)
-6000
1000
-5000  =SUM(G17:G18)
12000
-500
11500  =Sum(G21:G22)
9040  =G15+G19+G23
Let’s first
clean this
up a bit
…
and then
look at it
in more
detail …
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A Simple Cash Flow Statement
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Ever Profit International
Cash Flow Statement for the Year ended Dec 31, 1999
Cash Flows from Operations
Receipts
Interest received from Investment
Payments from Customers
Others
Disbursements
To suppliers
To employees
Others
Net Cash Flow from Op. Activites
Cash Flows from Investing Activities
Purchase of Equipment
Sale of Equipment
Net Cash Flow from Inv. Activities
Cash Flows from Financing Activities
Taking up of a long term loan
Payment of Dividends to Share Holders
Net Cash Flow from Fin. Activities
Net change in Cash Balance
200
12000
340
-4800
-5000
-200
2540  =Sum(G7:G14)
-6000
1000
-5000  =SUM(G17:G18)
12000
-500
11500  =Sum(G21:G22)
9040  =G15+G19+G23
Use the
Center and
Merge
Button
Change the
Font
Underline
before the
subtotals
Make the
main items
italic
Make the
total bold
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A Simple Cash Flow Statement
• Many accountants compute the amounts for the Cash
Flow Statement by using the Income Statement and the
changes in the related Balance Sheet accounts.
• This is often called the T-account approach. Of course
this only works if the relevant information is actually
listed in the Income Statement and Balance sheet.
Let us have a look at the items in the cash flow statement one
by one.
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Elements of a Cash Flow Statement
Cash Flows from Operations
Receipts
Here the most important receipts from daily operations for the
business are listed. It is important to realize that the choice of what
to list and what not is dependent on the nature of the company.
Disbursements
Here the most important disbursements necessary for the daily
operations are listed. Again, the choice of what to list and what not
depends on the nature of the company.
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Elements of a Cash Flow Statement
Cash Flows from Investing Activities
Purchase of Equipment
Most businesses cannot operate without some kind of investment.
In order to get (and keep) a company running, it needs to buy
certain equipment like e.g. computers and tools. Usually, such
items can be used for many years which is why they are not listed
under Cash Flow from Operations but separately.
Sale of Equipment
Of course one can also sell equipment previously bought. E.g. when
one wants to upgrade or when one no longer wants it. Think of
Singapore Airlines always wanting to have a nice new fleet. What to
do with those old planes? One option is to sell them.
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Elements of a Cash Flow Statement
Cash Flows from Financing Activities
Long Term Loan
Knowing when and where to borrow money is an important aspect
of management. If you borrow at the wrong moment at the wrong
place you might end up in trouble. (Think Asian Crisis). On the
other hand, if you have a great idea and give up on it due to lack of
funds you might loose a fantastic opportunity.
Since cash inflows (or outflows) due to loans are not part of daily
operations, they are listed separately here.
Payment of Dividends
Of course the idea of ‘investing’ in a company as a shareholder is
to get more money back than one puts in. Some companies return a
part of their profits to the shareholders as dividends as a kind of
interest on their shares (note: this is usually a rather small amount).
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Elements of a Cash Flow Statement
Net Change in Cash Balance
The net change in cash balance is an important indicator
for how well the company will be able to continue doing
business.
If the net change is strongly negative and the company has
little or no cash left, it will almost certainly need new
loans. It is good to know that one needs to plan for that.
On the other hand if the cash flow is positive and there are
little debts, extra cash for new investments or for
dividends will be available.
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Elements of a Cash Flow Statement
Now let us look at how we can actually obtain some of the
items from the Balance Sheet and the Income Statement.
Cash Flow from Operating Activities
Receipts
Payments from
Customers
=
Sales - Change in Accounts
Receivable
=
Cost of Goods sold + Change in
Inventory – Change in Accounts
Payable (for Inventory)
Disbursements
To Suppliers
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Example of a Cash Flow Statement
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Example of a Cash Flow Statement
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Key Points of the Day
• The Cash Flow Statement provides important
information regarding the cash requirements of
a company.
• (Parts of) the Cash Flow Statement can be
derived from the Balance Sheet and the Income
Statement by analyzing changes.
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