VCE Accounting

1. 12.8
ANALYSIS OF THE
CASH FLOW STATEMENT

2. 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

3. © 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

4. © 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

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING
ACTIVITIES
Ideally…
INVESTING
ACTIVITIES
FINANCING
ACTIVITIES
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

6. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING
ACTIVITIES
Situation #1…
INVESTING
ACTIVITIES
FINANCING
ACTIVITIES
100,000
(60,000)
(20,000)
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

7. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING
ACTIVITIES
INVESTING
ACTIVITIES
FINANCING
ACTIVITIES
100,000
(130,000)
40,000
Situation #2…
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

8. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING
ACTIVITIES
FINANCING
ACTIVITIES
INVESTIING
ACTIVITIES
100,000
(150,000)
60,000
Situation #3…
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

9. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Cash Balance
Operating
Investing
Financing
Operating
Investing
Financing
OPERATING
ACTIVITIES
FINANCING
ACTIVITIES
INVESTIING
ACTIVITIES
(50,000)
30,000
30,000
Situation #4…
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

10. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT
440
489 493
105
703
893
979
-
100
200
300
400
500
600
700
800
900
1,000
1994 1995 1996 1997 1998 1999 2000
Enron Net Profit ($m)
Went bankrupt in 2001…

11. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
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
-5,000
-4,000
-3,000
-2,000
-1,000
-
1,000
2,000
3,000
4,000
5,000
6,000
1996 1997 1998 1999 2000
Enron – Net Cash Flows ($m)
Operating
Activities ($m)
Investing
Activities ($m)
Financing
Activities ($m)
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

12. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
1,255
975
1,699
2,369
3,260
3,941
4,192
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2001 2002 2003 2004 2005 2006 2007
Lehman Brothers Net Profit ($m)
Went bankrupt in 2008…
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

13. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
-12,205
-36,376
-45,595
-447 -792 -1,698
12,112
38,255
48,592
-60,000
-40,000
-20,000
-
20,000
40,000
60,000
2005 2006 2007
Lehman Brothers – Net Cash Flows ($m)
Operating
Activities ($m)
Investing
Activities ($m)
Financing
Activities ($m)
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

14. © 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

15. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
43 94
187
327
660
1,257
2,238
-
500
1,000
1,500
2,000
2,500
2001 2002 2003 2004 2005 2006 2007
ABC Learning – No. of centres at year end
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

16. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
3.3 6.8
12.1
21.4
52.3
81.0
143.1
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
2001 2002 2003 2004 2005 2006 2007
ABC Learning – Net Profit ($m)
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT
Went bankrupt in 2008…

17. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

18. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 How could ABC Learning go broke in 2008 when its profits and cash
were growing?
52.3
81.0
143.1
45.7
88.0
123.1
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
2005 2006 2007
Net Profit
($m)
Net
Increase/
Decrease in
Cash ($m)
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

19. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
43.2 89.2
206.9
-454.0
-851.3
-1579.4
456.5
850.1
1495.6
-2,000.0
-1,500.0
-1,000.0
-500.0
-
500.0
1,000.0
1,500.0
2,000.0
2005 2006 2007
ABC Learning – Net Cash Flows ($m)
Operating
Activities ($m)
Investing
Activities ($m)
Financing
Activities ($m)
12.8 ANALYSIS OF THE
CASH FLOW STATEMENT

20. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
Ex12.7 X
Ex12.8 X
Ex12.9 X
Ex12.10 X
Case study X