12.8 analysis of the cash flow statement
TRANSCRIPT
12.8ANALYSIS OF THE CASH FLOW STATEMENT
Cash Flow Statement for the month ended 30 June 2015
$ $
Cash Flows from Operating Activities
Cash sales 50000
Receipts from debtors 10000
GST collected 5000
Cash purchases of stock (30000)
Advertising (3000)
Wages (14000)
Cleaning (3000)
GST paid (4000)
Net Cash Flow from Operating Activities
11000
Cash Flows from Investing Activities
Sale of office equipment 2000
Sale of furniture 4500
Purchase of computer (3000)
Purchase of vehicle (5500)
Net Cash Flow from Investing Activities
(2000)
Cash Flows from Financing Activities
Capital contributions 5000
Loan – NAB 15000
Drawings (10000)
Loan repayments (11000)
Net Cash Flow from Financing Activities
(1000)
Net increase (decrease) in cash 30300
Cash at start of period 2000
Cash at end of period 32300
Cash Flow Statement for the month ended 30 June 2015
$ $
Cash Flows from Operating Activities
Cash sales 50000
Receipts from debtors 10000
GST collected 5000
Cash purchases of stock (30000)
Advertising (3000)
Wages (14000)
Cleaning (3000)
GST paid (4000)
Net Cash Flow from Operating Activities
11000
Cash Flows from Investing Activities
Sale of office equipment 2000
Sale of furniture 4500
Purchase of computer (3000)
Purchase of vehicle (5500)
Net Cash Flow from Investing Activities
(2000)
Cash Flows from Financing Activities
Capital contributions 5000
Loan – NAB 15000
Drawings (10000)
Loan repayments (11000)
Net Cash Flow from Financing Activities
(1000)
Net increase (decrease) in cash 30300
Cash at start of period 2000
Cash at end of period 32300
Cash Flow Statement for the month ended 30 June 2015
$ $
Cash Flows from Operating Activities
Cash sales 50000
Receipts from debtors 10000
GST collected 5000
Cash purchases of stock (30000)
Advertising (3000)
Wages (14000)
Cleaning (3000)
GST paid (4000)
Net Cash Flow from Operating Activities
11000
Cash Flows from Investing Activities
Sale of office equipment 2000
Sale of furniture 4500
Purchase of computer (3000)
Purchase of vehicle (5500)
Net Cash Flow from Investing Activities
(2000)
Cash Flows from Financing Activities
Capital contributions 5000
Loan – NAB 15000
Drawings (10000)
Loan repayments (11000)
Net Cash Flow from Financing Activities
(1000)
Net increase (decrease) in cash 30300
Cash at start of period 2000
Cash at end of period 32300
Cash Flow Statement for the month ended 30 June 2015
$ $
Cash Flows from Operating Activities
Cash sales 50000
Receipts from debtors 10000
GST collected 5000
Cash purchases of stock (30000)
Advertising (3000)
Wages (14000)
Cleaning (3000)
GST paid (4000)
Net Cash Flow from Operating Activities
11000
Cash Flows from Investing Activities
Sale of office equipment 2000
Sale of furniture 4500
Purchase of computer (3000)
Purchase of vehicle (5500)
Net Cash Flow from Investing Activities
(2000)
Cash Flows from Financing Activities
Capital contributions 5000
Loan – NAB 15000
Drawings (10000)
Loan repayments (11000)
Net Cash Flow from Financing Activities
(1000)
Net increase (decrease) in cash 30300
Cash at start of period 2000
Cash at end of period 32300
Cash Flow Statement for the month ended 30 June 2015
$ $
Cash Flows from Operating Activities
Cash sales 50000
Receipts from debtors 10000
GST collected 5000
Cash purchases of stock (30000)
Advertising (3000)
Wages (14000)
Cleaning (3000)
GST paid (4000)
Net Cash Flow from Operating Activities
11000
Cash Flows from Investing Activities
Sale of office equipment 2000
Sale of furniture 4500
Purchase of computer (3000)
Purchase of vehicle (5500)
Net Cash Flow from Investing Activities
(2000)
Cash Flows from Financing Activities
Capital contributions 5000
Loan – NAB 15000
Drawings (10000)
Loan repayments (11000)
Net Cash Flow from Financing Activities
(1000)
Net increase (decrease) in cash 30300
Cash at start of period 2000
Cash at end of period 32300
Operating Activities
Investing Activities
Financing Activities
Closing Section
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Operating
Investing
Financing
Cash Inflows
Money comes into the
business from 3 sources
Cash comes in from selling goods and services:
• Cash sales
• Debtor collections
• GST received
Cash comes in from selling Non-Current Assets:
• Property
• Vehicles
• Equipment
Cash comes in from
• Borrowings (loans)
• Capital contributions
Cash is spent on running the business on a daily basis • Wages• Creditor
payments• Stock
purchases• Expenses paid
Cash is spent on buying Non-Current Assets • Property
• Vehicles
• Equipment
Cash is spent on
• Loan repayments
• Drawings
Cash Outflows
Money leaves the business in
3 ways
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
Net Cash Inflow
Net Cash Outflow
Operating Activities
Investing Activities
Financing Activities
The business has been able to generate net cash from its day-to-day operations
This can be spent on:• Buying non-
current assets• Loan
repayments• Drawings
The business can’t generate net cash from its day-to-day operations
It will have to get money from:• Selling non-
current assets• Borrowing
money• Capital
contributions
The business has generated cash by selling non-current assets
This is good because it may have sold unproductive assets
But this is also bad as it is not sustainable because:• The assets sold
won’t generate future cash
• The firm will run out of assets to sell
The business has spent money on non-current assets
This is good because these will be used to generate future revenues and cash
The business has raised money from:• Borrowing from
banks• Capital
contributions from the owner(s)
This is not sustainable because:• The firm has
increased its debt
• Loans must be repaid with interest
• The owner(s) can’t continue to make capital contributions
The business has spent money on:• Repaying loans
to the bank• Drawings to the
owner(s)
This is good because:• The firm has
reduced its debt• Interest
expenses will be lower
• The owner’s have made money from the business
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING ACTIVITIES
Ideally…
INVESTINGACTIVITIES
FINANCINGACTIVITIES
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING ACTIVITIES
Situation #1…
INVESTINGACTIVITIES
FINANCINGACTIVITIES
100,000
(60,000)
(20,000)
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING ACTIVITIES
INVESTINGACTIVITIES
FINANCINGACTIVITIES
100,000
(130,000)
40,000
Situation #2…
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING ACTIVITIES
FINANCINGACTIVITIES
INVESTIINGACTIVITIES
100,000
(150,000)
60,000
Situation #3…
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING ACTIVITIES
FINANCINGACTIVITIES
INVESTIINGACTIVITIES
(50,000)
30,000
30,000
Situation #4…
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
1994 1995 1996 1997 1998 1999 2000 -
100
200
300
400
500
600
700
800
900
1,000
440 489 493
105
703
893
979 Enron Net Profit ($m)
Went bankrupt in 2001…
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
1996 1997 1998 1999 2000
-6,000
-4,000
-2,000
-
2,000
4,000
6,000
884 211
1,640 1,228
4,779
-1,074
-2,146
-3,965 -3,507
-4,264
331
1,849 2,266 2,456
571
Enron – Net Cash Flows ($m)
Operating Activities ($m)
Investing Ac-tivities ($m)
Financing Ac-tivities ($m)
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use2001 2002 2003 2004 2005 2006 2007
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
1,255 975
1,699
2,369
3,260
3,941 4,192
Lehman Brothers Net Profit ($m)
Went bankrupt in 2008…
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
2005 2006 2007
-60,000
-40,000
-20,000
-
20,000
40,000
60,000
-12,205
-36,376
-45,595
-447 -792 -1,698
12,112
38,255
48,592
Lehman Brothers – Net Cash Flows ($m)
Operating Activities ($m)
Investing Ac-tivities ($m)
Financing Ac-tivities ($m)
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
ABC Learning:
Founded by Eddie Groves
Grew from one childcare centre in 1988
At its peak, ABC Learning was opening up four new centres per week
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
2001 2002 2003 2004 2005 2006 2007 -
500
1,000
1,500
2,000
2,500
43 94 187
327
660
1,257
2,238
ABC Learning – No. of centres at year end
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
2001 2002 2003 2004 2005 2006 2007 -
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
3.3 6.8 12.1
21.4
52.3
81.0
143.1
ABC Learning – Net Profit ($m)
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
Went bankrupt in 2008…
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
How could ABC Learning go broke in 2008 when its profi ts and cash were growing?
2005 2006 2007 -
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
52.3
81.0
143.1
45.7
88.0
123.1Net Profit ($m)
Net In-crease/ Decrease in Cash ($m)
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
2005 2006 2007
-2,000.0
-1,500.0
-1,000.0
-500.0
-
500.0
1,000.0
1,500.0
2,000.0
43.2 89.2 206.9
-454.0
-851.3
-1579.4
456.5
850.1
1495.6
ABC Learning – Net Cash Flows ($m)
Operating Activities ($m)
Investing Ac-tivities ($m)
Financing Ac-tivities ($m)
12.8 ANALYSIS OF THE CASH FLOW STATEMENT
© Michael Allison, Trinity Grammar School.Author’s permission required for external use
TASK
In-class Homework
Ex12.7 XEx12.8 XEx12.9 XEx12.10 XCase study X