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Cash can flow in two directions either coming in to your business or

going out. Cash coming in to your business is shown as positive amounts,


whereas cash going out from your business are shown as negative
amounts (usually in parentheses). Dividends are cash payouts to people
who have bought shares in a company. Proceeds means cash received.
Cash Flow statement shows the flows of cash over a period of time like
say a year or so and not like balance sheet which gives a snapshot as on
date.
Cash Flow statement analysis is done to gauge financial health of the
companies.
The statement is divided into four parts:
1) Cash flows from operating activities Operating Cash Flow (OCF)
involves core activities of the business.
- cash receipts (cash received) from your customers,
- cash paid to suppliers and employees,
- dividends paid**
- interest received*
- interest paid
- tax paid
CASH FLOWS FROM OPERATIONS
cash receipts
Cash paid
Dividens received
Interest received
Interest paid
Tax paid
Net OCF

83000
(56000)
250
500
(500)
(2450)
24800

2) Cash flow from investing activities - Investing cash flow (ICF).


Investing (in the context of the cash flow statement) means the spending
of cash on non-current assets during the period for which the cash flow
statement is made.
For example,
- cash spent on purchasing computer equipment/vehicles, etc.
- cash spent on a purchasing plant/machinery/equipment.
- cash spent on maintenance of building purchased.

Thus, generally, ICF consists of cash outflows and hence the total of this
section is usually negative. But say if you sell an asset, like say old
machinery /equipment/ building(plant), doesnt matter profit or loss, the
proceeds you receive will be treated as cash inflow under ICF for that
period.
Note that: Purchases of assets are put under two different categories:
additions or replacements.
Additions means purchases of additional assets in order to expand the
business.
Replacements do not involve expansion but rather refer to an asset
being purchased to replace an old or obsolete (no longer used) asset.
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment/machinery
Replacement of equipment/machinery
Proceeds from sale of equipment
Net ICF

(2500)
(7000)
500
(9000)

3) Cash flow from financing activities - Financing Cash Flow (FCF)


Financing is the source from where the company generates or raises cash.
It is where the company gets the cash from. This cash is then used to
invest in non-current assets. Thus financing activities usually
involves cash inflows for a business.
Financing can come from the owner (shareholders or owners equity) i.e.
share capital provided to the company or from liabilities (debt/loans). i.e.
Cash inflows from shareholders or lenders.
Now, if you repay the loan (in part or in full) for the financing originially
obtained, the principal amount (NOT THE Interest Paid) paid will be
considered as cash outflow under financing activities. Thus the repayment
of a loan (in part or in full) falls under financing activities (as a cash
outflow), as the loan served as finance for the business originally.
NOTE: Interest paid comes under OCF.
Similarly, dividends may also be placed under this section, although it can
also be placed under the operating activities section, if the business so
chooses. (as seen above)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from shareholders capital (in this year)
Proceeds from Loan
Payment of Loan
Net FCF

3400
16000
(5400)
13000

Therefore, adding sections 1 ,2 and 3, we get Net Cash


Increase/Decrease in Cash:
Net OCF
Net ICF
Net FCF
Net Cash Increase/Decrease in
Cash

24800
(9000)
13000
28000

4) The final section comprises of the net cash increase or decrease for
the period and the cash balance at the beginning and end of the period.

Net Cash Increase/Decrease in Cash (for this year)


Cash at the beginning of the current period (i.e. end of the
previous period)
Cash at the end of the period

28000
2430
31,230

NOTE: This obtain figure for cash at the end of the current period will
be reported as Cash or bank account in the balance sheet under Current
Assets.

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