The statement of cash flows tells you how much cash went into and out of a company during a specific time frame such as a quarter or a year. You may wonder why there's a need for such a statement because it sounds very similar to the income statement, which shows how much revenue came in and how many expenses went out.
The difference lies in a complex concept called accrual accounting. Accrual accounting requires companies to record revenues and expenses when transactions occur, not when cash is exchanged. While that explanation seems simple enough, it's a big mess in practice, and the statement of cash flows helps investors sort it out.
If there was a challenge in any Finance course at any B School, we think creating the Cash Flow Statement would score the max. In MBA, the biggest enigma for most is to go from the Balance Sheet and Income Statement to the Cash Flow statement via the indirect route. Most never get it right!
There are two challenges, the bigger was obviously unclear concepts plus excel woes! We have worked hard on both and let us show you, how they can be used to get the right cash flow statement in no time!
Here we will explain the basic concept of Cash Flow, for a better understanding you can download our Facebook Cash Flow Statement.
Assets = Liabilities
Derivation from the Basic Concept
If my Balance sheet Balances for two successive years (Lets say, FY 11 and FY 12), then
If I subtract the two, I can say that
[Cash FY 12 - Cash FY 11 ] + [Other Assets FY 12 – Other Assets FY 11 ] = [Liabilities FY 12 - Liabilities FY 11]
Or we can also say
[Cash FY 12 - Cash FY 11 ] = [Liabilities FY 12 - Liabilities FY 11] – [Other Assets FY 12 – Other Assets FY 11 ]
We have made an example Cash Flow statement along with all the details required for Facebook. You can download it here.
You can download and see the complete project evaluation model for Facebook. EduPristine’s extensive Financial Modeling course covers this aspect in detail. To know more, quickly write an email to email@example.com.