Summary finance & control year 2 book material and class material

2.4 Cash flow statement - indirect method
Statement of cash flows definition:
 accounting statement that shows earned cash usage in a certain period
 info comes from income statement & balance sheet

Statement of cash flows 3 sections:
1. operating activity (net income +- non-cash entries for operations)
2. investment activity (cash used for investment)
3. financing activity (cash flow of firms to investors and vice-versa)

Operating activity
 Net income
o + depreciation (this was deducted to compute net income, but there was no
actual cash outflow)
o + non-cash expenses
o + deferred taxes (uitgestelde)
o - accounts receivables (sale is made but cash is not available)
o + accounts payable (borrowed money that can be used)
o - inventory increase (money spend)
o + inventory decrease (money made)

Investment activity
capital expenditures
 purchases of new property, plant & equipment (long-term investments)
o deduct when computing cashflows

Financing activity
 retained earnings = net income - dividends
 payout ratio = dividends / net income
o ratio of a firm’s dividends to its net income.
o % of net income spend on dividends
 selling shares > add cash
 issue debts (increase borrowings) > add cash

income statement
sales
- cogs
gross profit
- operating expenses
- r&d expenses
- administrative expenses
- depreciation
income from operations
-non operating expenses
net income

, dividends paid = net income - retained earnings

balance sheet trick
Asset goes up - money goes down Liability/equity goes up - cash goes up

Asset goes down - money goes up Liability/equity goes down - cash goes
down


Check by:
 total cash flow = cash 2019 - cash 2018


Operating Investing Financing
Inflows Inflows Inflows
 sale goods/services  sale of PPE  sale of ordinary
 interest/dividends  sale of investment shares
received  principal on loans to  issue long-debt/ LT
 ST liabilities others liabilities
Outflows Outflows Outflows
 paying suppliers  purchase PPE  pay shareholders
(increase inventory)  purchase investment (dividends)
 paying employees  make loans to others  redeem long-term
(wages) debts
 paying government  reacquire ordinary
(taxes) shares
 paying lenders
(interest)
 expenses

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add all these up and you will see the net income