Statement of Cash Flow

What is the Statement of Cash Flows?

Statement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities over the specific accounting period.

It is one of the top 3 Financial Statements that helps us understand the flow of cash in the business and how it has moved in and out of the company in a particular period.

Cash Flow Statement Format

It is subdivided into three categories –

#1 – Cash flow from Operating Activities

It is the cash flow generated from the operation of the business. This cash flow is generated from the principal revenue generation activities of the company. The primary components of this part include accounts receivablesAccounts ReceivablesAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet.read more, inventory, depreciation, and accounts payable.

• Cash flows from operating activities for Samsung is cash flow from the business of manufacturing and sale of Mobiles, TVs, refrigerators, and other electronic activities, which are its mainstream operating activities and not the cash flow from some sale of investments.
• Similarly, cash flows from operating activities of Coal India are the cash flows from generation and sale of coal and not from the sale of the old computers lying in its office.

Generally, net income (appearing in profit and loss account) is considered as a primary source of cash flow from operating activities, and the same is adjusted with changes in current assetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more and liabilities, non-cash expensesNon-cash ExpensesNon-cash expenses are those expenses recorded in the firm's income statement for the period under consideration; such costs are not paid or dealt with in cash by the firm. It involves expenses such as depreciation.read more and other items associated with investing and financing activities like dividend, interest on debentures, sale and purchase of assets, extraordinary income or expenses, etc.

Let us now have a look at the Statement of Cash flow (Operating ActivitiesOperating ActivitiesOperating activities generate the majority of the company's cash flows since they are directly linked to the company's core business activities such as sales, distribution, and production.read more) of Colgate.

Colgate’s Example

source: Colgate SEC Filings

• As we note from the above statement of cash flow that Colgate’s Net Income in 2015 was $1,548 million.
• Cash flow from operations has decreased as compared to the previous periods (2013 and 2014).
• Also, note that there was Charge for Venezuela accounting change of $1084 million added in 2015.

#2 – Cash flow from Investing Activities

Cash Flow from Investments represents the cash flows from the acquisition or disposal of company long term investments such as investments in subsidiaries and associates, plant & equipment, fixed assets.

If Coca Cola is planning to build a bottling plant in India with an investment of $ 10Mn, the cash outflow of $10Mn is a cash outflow from investment activities.

Colgate’s Example

 

source: Colgate SEC Filings

• We note from the above statement of cash flow that there is a cash outflow of -685 million in 2015 and -859 million in 2014.
• Colgate’s investment in buying core assets was a cash outflow of -691 million in 2015 as compared to -757 million in 2014.
• Colgate generated $599 million from the sale of marketable securities and investments.
• Colgate received $221 million from proceeds from the sale of South Pacific laundry detergent business.

#3 – Cash flow from financing activities

It shows the cash inflows and outflows from transactions with providers of financing to the company like banks, shareholders, and promoters.

Some of the examples from financing activities are,

• Proceeds from borrowings,
• Proceeds from issuance of the shares,
• Repayment of borrowings,
• Buyback of shares
• Interest on loans and borrowings
• DividendDividendDividend is that portion of profit which is distributed to the shareholders of the company as the reward for their investment in the company and its distribution amount is decided by the board of the company and thereafter approved by the shareholders of the company.read more paid on shares issued Etc;

Let’s take a statement of cash flow (financing). A company issued sharesIssued SharesShares Issued refers to the number of shares distributed by a company to its shareholders, who range from the general public and insiders to institutional investors. They are recorded as owner's equity on the Company's balance sheet.read more of $ 1,50,000 and took a loan from the bank for $30,000 Dividends paid is $ 5,000 interest paid is $2,000.

• Loan received        $30,000
• Issue of shares       $ 1,50,000
• Dividend paid         ($ 5,000)
• Interest paid           ($2,000)

Total cash flows from Financing =  $ 1,73,000

Colgate’s Example

source: Colgate SEC Filings

• Colgate principal repayment on debt was -9,181 million in 2015, and its issuances stood at $9,602 million
• Colgate has a stable dividend policyDividend PolicyDividend policy is the policy that the company adopts for paying out the dividends to the company's shareholders, which includes the percentage of the amount at which the dividend is to be paid out to the stockholders and how frequent the company pays the dividend amount.read more. They paid -1,493 million in 2015 and -1446 million in 2014.
• As a part of its Share buyback programShare Buyback ProgramShare buyback refers to the repurchase of the company’s own outstanding shares from the open market using the accumulated funds of the company to decrease the outstanding shares in the company’s balance sheet. This is done either to increase the value of the existing shares or to prevent various shareholders from controlling the company.read more, Colgate buys back shares at regular intervals. In 2015, Colgate purchased $1551 million worth of shares.

Examples

Google

source: ycharts

• Cash Flow From Operations – Google’s CFO consists of advertising revenues, sales of apps, in-app purchases, digital and hardware products, licensing arrangements, as well as fees from Google Cloud Services.
• Cash Flow From Investing Activities – It consists of purchases of marketable securities, cash collateral paid related to securities lending, and spends related to acquisitions.
• Cash Flow from Financing Activities – It primarily included the issuance of debt, debt repayments, repurchases of capital stockCapital StockThe capital stock is the total amount of share capital (including equity capital and preference capital) that has been issued by a company. It is a way of raising funds by the company to meet its various business goals.read more, and net payments related to stock-based award activitiesStock-based Award ActivitiesStock-based compensation also called share-based compensation refers to the rewards given by the company to its employees by way of giving them the equity ownership rights in the company with the motive of aligning the interest of the management, shareholders and the employees of the company.read more.

Amazon

source: ycharts

• Cash Flow from Operations – It consists of cash received from consumer, seller, developer, enterprise, and content creator customers, advertising agreements, and co-branded credit card agreements.
• Cash Flow from Investing –consists of cash capital expendituresCash Capital ExpendituresCapex or Capital Expenditure is the expense of the company's total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more, including leasehold improvements, internal-use software and website development costs, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securitiesMaturities Of Marketable SecuritiesMarketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company's balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it.read more.
• Cash Flow from Financing Activities – Consists of Principal repayment of long-term debt and obligations related to capital and financial leases.

Box Inc

source: ycharts

• Cash Flow from Operations – Consists of cash generated form Software-as-a-Service (SaaS) cloud content management platform. Unlike the other two examples of Amazon and Google, Box Statement of Cash Flow from Operations is weak due to continued losses over the years.
• Cash Flow from Investing Activities – Box Cash Flow from Investing activities was at -$7.57 million in 2016 as compared to -$80.86 million in 2015. This was primarily due to reduced capital expenditure in the core business.
• Cash flow from Financing Activities – Box Cash Flow from Financing Activities have shown a variable trend. In 2015, Box came up with its IPOBox Came Up With Its IPOThe analysis of the Box IPO valuation can be done using various methodologies which are Relative Valuation – SaaS Comparable Comps, Comparable Acquisition Analysis, Using Stock-Based Rewards, Valuation cues from Private Equity Funding, Valuation cues from Dropbox Private Equity Funding, and Discounted Cash Flow Approach for Box IPO Valuation.read more, and therefore its Cash Flow from Financing increased to $345.45 million in 2015. Prior to its IPO, Box was financed by Private Equity Investors.

Recommended Articles

This has been a guide to what is Statement of Cash Flows and its definition. Here we discuss the format of cash flow statement, including CFO, CFI, and CFF, along with its interpretation. You may learn more about accounting from the following articles –

• What is the Purpose of Cash Flow Statements?
• Cash Flow Statement Examples
• Pro Forma Cash Flow Statement
• Cash Flow Analysis