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In financial accounting, a Cash Flow Statement, also known as Statement of Cash Flow, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements.
If you have done financial modelling, you will know that making right cash flow statement is one of the critical tasks in the process of valuation of the company. Making an exact cash flow statement with all line items as per annual report of the company is an excellent idea but it requires a lot of accounting information of the company and as an Analyst, you always lack the information required to make a detailed cash flow statement.
As an Analyst you only need to have the balancing figure of “Cash and Cash equivalents” to tally the balance sheet and to compute the required figure. One need not make detailed cash flow account as per annual report of the company. You can easily figure out the required Cash and Cash equivalents amount using following equation:
Cash and Cash Equivalents = Total Liabilities + Shareholder’s equity “Total Assets (Except Cash and Cash Equivalents)
Today we’ll learn how to create Cash Flow Statement Template for a Real life Company – ‘LinkedIn’.
Let’s get started!
Using similar method calculate the cash outflow for all the operating items under Assets
Calculating Total Cash Flow from Operating activities.
This is our final Cash Flow Statement. Note that we haven’t shown the Cash Flow for 2010. This is because our balance sheet does not have 2009 data. It is a simple matter of extending the formulas otherwise.
In case you’re interested in learning in depth about how to create Cash Flow Statement template and complex financial models for companies, you can join our Financial Modeling course.
Apart from helping companies track the inflow and outflow of cash, the Cash Flow statements can also be used by investors and creditors. Investors can estimate the future cash flows of the company through the Cash Flow statement which helps them in making investment decisions. It also helps them analyze operating, investing, and financial activities in an organization. Cash Flow statement provides an insight into the liquidity status and solvency of a company and the cash-generating ability of the company. Cash Flow statement also helps the debtors and creditors determine the repayment capacity and capability of the company.
If you want to specialize in Accountancy, here are the best professional courses you should opt for:
How to understand and interpret Cash Flow statement
If you have any doubts or queries, feel free to post them below
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