This article picks up where we left off last week.
Operating cash flows arise mainly from a company’s regular operations that generate revenue. This is the main indicator of whether the company’s operations have generated cash flows that are sufficient, without any external financing sources, to –
-
repay loans,
-
keep the company in business,
-
pay dividends and make new investments.
The choice of method for preparing the statement of cash flows we mentioned earlier affects only the cash flows from operations section, and both methods should give the same results!
Cash flows from operations: direct method – example
|
|
2019
EUR
|
2018
EUR
|
|
Cash flows from operations
|
|
|
|
Income from sales of goods and services
|
1000
|
1000
|
|
Payments to suppliers and employees, and other operating expenses
|
(500)
|
(1000)
|
|
Other operating income or expenses
|
100
|
100
|
|
Gross cash flow from operations
|
600
|
100
|
|
Interest charges
|
(100)
|
(100)
|
|
Corporate income tax charges
|
(100)
|
(100)
|
|
Net cash flow from operations
|
400
|
(100)
|
Cash flows from operations: indirect method – example
|
|
2019
EUR
|
2018
EUR
|
|
Cash flows from operations
|
|
|
|
Profit or loss before adjustment for corporate income tax
|
1500
|
1500
|
|
Adjustments for impaired fixed assets
|
100
|
100
|
|
Adjustments for impaired intangibles
|
100
|
100
|
|
Provisions (except for bad debts)
|
(100)
|
(100)
|
|
Profit or loss from currency fluctuations
|
(100)
|
(100)
|
|
Income from shares in related, associated or other companies
|
(200)
|
(200)
|
|
Income from other securities and loans forming non-current financial investments
|
(200)
|
(200)
|
|
Other interest income and similar income
|
(800)
|
(800)
|
|
Adjustments for impaired long-term and short-term financial investments
|
100
|
100
|
|
Interest charges and similar costs
|
(100)
|
(100)
|
|
Profit or loss before adjustments for changes in current assets and short-term payables
|
300
|
300
|
|
Adjustments:
|
|
|
|
Increase or decrease in receivables
|
100
|
(50)
|
|
Increase or decrease in inventories
|
100
|
(50)
|
|
Increase or decrease in trade payables
|
100
|
(100)
|
|
Gross cash flow from operations
|
600
|
100
|
|
Interest charges
|
(100)
|
(100)
|
|
Corporate income tax charges
|
(100)
|
(100)
|
|
Net cash flow from operations
|
400
|
(100)
|
|
|
|
|
Cash flows from investing include those related to the acquisition or disposal of all non-current assets or trade investments made with cash received from them, i.e. dividends and interest. This section shows the amount of new investment in assets intended to generate future income and cash flows.
Cash flows from investing – example
|
|
2019
EUR
|
2018
EUR
|
|
Cash flows from investing
|
|
|
|
Acquisition of shares in related, associated or other companies
|
(100)
|
–
|
|
Income from disposal of shares in related, associated or other companies
|
100
|
100
|
|
Acquisition of fixed assets and intangibles
|
(310)
|
–
|
|
Income from sales of fixed assets and intangibles
|
10
|
–
|
|
Loans made
|
(100)
|
–
|
|
Income from loan repayments
|
100
|
–
|
|
Interest received
|
50
|
–
|
|
Dividends received
|
50
|
–
|
|
Net cash flow from investing
|
(200)
|
100
|
(to be completed next week)
