Aplicor's Cash Flow Report Design

Cash flow Statements (sometimes called Statements or Cash Flows or FASB 96 statements) report a company’s cash inflows and outflows for a defined period. This report of ‘sources and uses of cash’ for a time period is helpful so that a company can view its operational performance from a cash basis position and particularly useful so that a company has visibility to the cash needed to meet its financial obligations (purchase commitments, payroll, etc.)  As an analysis tool, the Cash Flow Statement is useful in evaluating long term purchase decisions as well as the short-term viability of a company, particularly its ability to pay bills. The IFRS (International Financial Reporting Standards), International Accounting Standard 7 (IAS 7) is the most closely aligned International Accounting Standard to the US GAAP Cash Flow Statement. See Appendix A for future IAS 7 report criteria.

While a Profit & Loss (P&L) financial statement does display the amount of profit made or lost for a period, accrual based accounting adds non-cash charges (such as accruals, deferred revenues, bad debt write-offs, amortizations, depreciations, etc.) to the profit calculation and the P&L report; thereby not giving a true indication of cash movement or cash position. The Cash Flow Statement instead includes only inflows and outflows of cash and cash equivalents and excludes transactions that do not directly affect cash receipts and payments. The Cash Flow statement has become a standard financial statement because it eliminates allocations which can be derived differently based on different accounting methods, such as various methods and useful lives for depreciating assets.

A Cash Flow Statement shows cash increases and decreases over time and the net cash increase or decrease for the period. The Cash Flow Statement uses and reorders the data from a company’s balance sheet and income statement. It shows how changes in balance sheet and income accounts affected cash and cash equivalents, and breaks the analysis down according to operating, investing, and financing activities.

Operating Activities
This section displays the company’s cash flow from net income or losses. For most companies, this section of the cash flow statement reconciles the net income (as shown on the income statement) to the actual cash the company received from or used in its operating activities. To do this, it adjusts net income for any non-cash items (such as adding back depreciation expenses) and adjusts for any cash that was used or provided by other operating assets and liabilities.
Investing Activities
This section shows the cash flow from all investing activities, which generally includes purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities. If a company buys a piece of machinery, the cash flow statement would reflect this activity as a cash outflow from investing activities because it used cash. If the company decided to sell off some investments from an investment portfolio, the proceeds from the sales would show up as a cash inflow from investing activities because it provided cash.
Financing Activities
This sections shows the cash flow from all financing activities. Typical financing activities include cash raised by selling stocks and bonds or borrowing from banks. Likewise, paying back a bank loan would show up as a use of cash flow.

Noncash activities are normally reported in the financial statement footnotes. According to GAAP, noncash activities may be disclosed in a footnote or within the cash flow statement itself. Noncash financing activities may include:

• leasing to purchase an asset
• converting debt to equity
• exchanging noncash assets or liabilities for other noncash assets or liabilities
• issuing shares in exchange for assets

Indirect Method Cash Flow Statement

There are two Cash Flow preparation methods. Aplicor’s Cash Flow Statement uses the Indirect Method. While the Direct Method is more straightforward, the indirect method is almost universally used, because FAS 95 requires a supplementary report similar to the indirect method if a company chooses to use the direct method.
The indirect method uses net income as the starting point, lists all non-cash transactions as adjustments and then adjusts for all cash-based transactions. An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income. This method converts accrual-basis net income (loss) into cash flow by using a series of additions and deductions.

IAS (International Accounting Standard) 7 Cash Flow Statement Differences

Under IAS 7, operating cash flows include:

• receipts from the sale of goods or services
• receipts for the sale of loans, debt or equity instruments in a trading portfolio
• interest received on loans
• dividends received on equity securities
• payments to suppliers for goods and services
• payments to employees or on behalf of employees
• tax payments
• interest payments (alternatively, this can be reported under financing activities in IAS 7, but not in US GAAP)
• payments for the sale of loans, debt or equity instruments in a trading portfolio

Items which are added back to the net income figure (which is found on the Income Statement) to arrive at cash flows from operations generally include:

• Depreciation (loss of tangible asset value over time)
• Deferred tax
• Amortization (loss of intangible asset value over time)
• Any gains or losses associated with an asset sale (unrealized gains/losses are also added back from the income statement)

Under IAS 7, investing cash flows include:

• collections on loan principal and sales of other firms' debt instruments
• investment returns from other firms' equity instruments, including sale of those instruments
• receipts from sale of plant and equipment
• expenditure for purchase of plant and equipment
• loans made and acquisition of other firms' deb instruments
• expenditure for purchase of other firms' equity instruments (unless held for trading or considered cash equivalents)

Items under investing activities include:

• Capital expenditures, which include purchases (and sales) of property, plant and equipment
• Investments

Under IAS 7, financing cash flows include:

• proceeds from issuing shares
• proceeds from issuing short-term or long-term debt
• payments of dividends
• payments for repurchase of company shares
• repayment of debt principal, including capital leases
• for non-profit organizations, receipts of donor-restricted cash that is limited to long-term purposes

Items under the financing activities section include:

• Dividends paid
• Sale or repurchase of the company's stock
• Net borrowing

Under IAS 7, noncash investing and financing activities are disclosed in footnotes to the financial statements.

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