What is Cash Flow Statement | How it is Calculated | Hindi

Summary

In this video, we explore the concept of a Cash Flow Statement (CFS), a vital financial tool for assessing a company’s liquidity and performance. It highlights how the CFS is divided into three main sections: Operating, Investing, and Financing activities. The video explains both the direct and indirect methods of calculating cash flow and their significance for businesses, emphasizing how investors use these statements to evaluate a company’s financial health. Additionally, it touches on the limitations of cash flow statements and how they focus solely on cash movements, not providing a complete financial picture.

Takeaways

• 😀 A cash flow statement tracks the inflow and outflow of cash in a company over a specific period.
• 😀 It is a key financial document, along with the income statement and balance sheet, that helps investors assess a company's performance.
• 😀 The cash flow statement is divided into three main sections: operating activities, investing activities, and financing activities.
• 😀 Operating activities show cash generated from a company's core operations, such as sales, interest, tax, and salary payments.
• 😀 Investing activities focus on cash inflows and outflows related to investments, such as purchasing or selling assets.
• 😀 Financing activities reflect cash movements related to loans, stock issuance, and debt repayments.
• 😀 There are two methods to calculate cash flow: the direct method and the indirect method.
• 😀 The direct method involves directly accounting for cash receipts and payments, while the indirect method adjusts net income for changes in working capital.
• 😀 Positive cash flow occurs when inflows exceed outflows, indicating financial health, while negative cash flow can signify stress or significant investments.
• 😀 The cash flow statement does not provide a complete picture of a company's financial health, as it focuses only on cash transactions.
• 😀 Despite its limitations, the cash flow statement remains a valuable tool for understanding how well a company manages its cash resources.

Q & A

What is a Cash Flow Statement and why is it important for a company?

A Cash Flow Statement is a financial document that shows the inflow and outflow of cash in a company over a specific period. It helps assess the company's financial health by showing how much cash is generated and used in its operations. This is crucial for understanding whether the company has enough cash to meet its obligations and sustain growth.

What are the main sections of a Cash Flow Statement?

A Cash Flow Statement generally consists of three main sections: Cash from Operating Activities, Cash from Investing Activities, and Cash from Financing Activities.

What does 'Cash from Operating Activities' signify in a Cash Flow Statement?

'Cash from Operating Activities' shows how much cash is generated from the company's regular business operations. It includes receipts from sales, payments for goods, services, salaries, interest, taxes, and other operational expenses.

How is 'Cash from Investing Activities' reported?

'Cash from Investing Activities' reflects cash flows related to investments made by the company, such as purchasing or selling assets or securities. It tracks the cash used or generated by the company's investment activities.

What is included in 'Cash from Financing Activities' in a Cash Flow Statement?

'Cash from Financing Activities' includes cash flows from activities such as borrowing or repaying loans, issuing or repurchasing stock, or paying dividends. It shows how the company finances its operations through external sources.

What are the two methods used to calculate Cash Flow, and how do they differ?

The two methods used to calculate cash flow are the Direct Method and the Indirect Method. The Direct Method involves calculating cash receipts and payments directly. The Indirect Method starts with net income and adjusts for changes in balance sheet items to reflect the actual cash flow.

Which method is more commonly used by companies to calculate Cash Flow and why?

Most companies prefer the Indirect Method because it is less time-consuming and easier to implement. It requires adjustments based on changes in non-cash items, unlike the Direct Method, which involves direct tracking of cash receipts and payments.

What is the significance of positive and negative cash flows in a Cash Flow Statement?

Positive cash flow indicates that the company is generating more cash than it is spending, suggesting good financial health. Negative cash flow indicates the opposite, where more cash is being used than generated, which may point to potential financial difficulties.

What are some limitations of a Cash Flow Statement?

One limitation of the Cash Flow Statement is that it only provides information about cash inflows and outflows, without revealing the complete picture of a company’s financial health. Non-cash transactions, like depreciation or amortization, are not included. Therefore, it may not provide a full understanding of a company’s overall financial position.

Why is it important to check the Cash Flow Statement along with other financial documents like the Income Statement and Balance Sheet?

The Cash Flow Statement should be analyzed alongside the Income Statement and Balance Sheet for a comprehensive view of a company’s financial health. While the Income Statement shows profitability and the Balance Sheet shows financial position, the Cash Flow Statement reveals how cash moves through the company, which is critical for day-to-day operations and long-term viability.