ABSTRACT:

A cash flow statement is prepared by an entity; it is one of the most

important statements. It shows cash receipts from major sources and cash
payments for major uses during a period. It may be prepared at quarterly
intervals but at least at yearly intervals. It provides useful information about an
entity’s activities in generating cash from operations. It informs about program
to repay debts, distribute dividends or reinvest to maintain or expand its
operating capacity. It gives also information about its financing activities, both
debt and equity, and about its investment in fixed assets or current assets other
than cash. In other words, a cash flow statement lists down various items and
their respective magnitude which bring about changes in the cash balance
between two balance sheet dates. All the items whether current or non-current
which increase or decrease the balance of cash are included in the cash flow
statement. Therefore, the effect of changes in the current assets and current
liabilities during an accounting period on cash position is assessed from its
perusal. The depiction of all possible sources and applications of cash in the
cash flow statement helps the financial manager in short-term financial planning
in a significant manner; interest payment on debentures and dividend pay-off to
shareholders can be met out of cash only. This Article is based on the practice
followed and instruction for its preparation contained in the various text books
for the guidance of the students and accountants. It is hoped that the content of
this Article would help the readers to understand Cash-flow statement properly.
 CONTENTS
Sl No Name of Content Pg. No
1. Introduction on cash flow 1

2. Concept of cash flow 2

3. Objectives of cash flow 3

4. Importance of cash flow 3-4

5. Preparation of cash flow statement 4-7

6. Format of Cash Flow Statement Under Indirect Method 8-9
7. NALCO profile 10

8. Preparation of cash flow statement of NALCO 11-12

9. Conclusion 13

10. Bibliography 14
CASH FLOW STATEMENT
INTRODUCTION

Simply, cash flow statement indicates the amount of cash receipts and the amount of
cash payments or disbursements during a specified time. It outlines from where cash was
generated and to where it was expensed. In other words, it reports the cash inflows and cash
outflows, during a time period.

The cash flow statement shows the net increase or decrease in cash and explains the
causes for the changes in the cash balance, during a certain time period. The major business
activities that result in either net cash inflow or net cash outflow are Operating, Financing and
investing activities.

The moment of cash is vital importance to management therefore cash flow statement
is mandatory for every concern according to accounting standard 3. This statement shows the
reason of changes in cash balance of the firm between to balance sheet dates. The cash flow
statement was previously known as the flow of funds statement. The cash flow statement
reflects a firm's liquidity.

The statement of financial position is a snapshot of a firm's financial resources and

obligations at a single point in time, and the income statement summarizes a firm's financial
transactions over an interval of time. These two financial statements reflect the accrual basis
accounting used by firms to match revenues with the expenses associated with generating
those revenues. The cash flow statement includes only inflows and outflows of cash and cash
equivalents; it excludes transactions that do not directly affect cash receipts and payments.
These non-cash transactions include depreciation or write-offs on bad debts or credit losses to
name a few.[3] The cash flow statement is a cash basis report on three types of financial
activities: operating activities, investing activities, and financing activities. Non-cash
activities are usually reported in footnotes.

According to Anthony, “Cash flow statement is a statement prepared to indicate the increase
in the cash resources and the utilization of such resources of a business during the accounting
period.”

According to Anthony ‘‘A financial statement that shows how changes in balance sheet
accounts and income affect cash and cash equivalents, and breaks the analysis down to
operating, investing and financing activities.’’

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CONCEPT OF CASH FLOW STATEMENT

CASH:
The following items are required to be included in list of cash flow statement according to
accounting standard 3.

➢ Cash in hand and demand deposits with bank

➢ Cash equivalent like short term highly liquid investment which can be readily
convertible into cash.

CASH EQUIVALENT:

The short term highly liquid investment which can be converted into cash
without loss of value and with significant rise .These are needed for the purpose
of meeting short term cash commitment .They have short term maturity period
for less than 3 months like commercial paper ,money market instrument
,preference shares shortly acquired less than 3 months before their specified
date for redemption .

FORMULA

Cash and cash equivalent = Cash in hand + Cash at bank + Marketable Security
– (Bank overdraft + Cash credit).

CASH FLOWS:
The flow of cash into or from the business is call flow of cash. Cash flow is classified
into 2 which are inflow and out flow of cash and cash equivalents. Flow of is said to be taken
place when any transaction makes changes in cash and cash equivalent available before
happening of transaction. If a transaction occurs and it increases the cash and cash equivalent
the it is too said as cash inflow. On the other hand, the decrease in cash and cash equivalent
then it is called as outflow of cash.

2
OBJECTIVES OF CASH FLOW STATEMENT
The Cash Flow Statement is prepared because of number of merits, which are offered
by it. Such merits are also termed as its objectives. The important objectives are as follows:

1. To Help the Management in Making Future Financial Policies:

Cash Flow statement is very helpful to the management. The management can
make its future financial policies and is in a position to know about surplus or deficit
of cash.

2. Helpful in Declaring Dividends etc.:

Cash Flow Statement is very helpful in declaring dividends etc. This
statement can supply necessary information to understand the liquidity.

3. Cash Flow Statement is Different than Cash Budget:

Cash budget is prepared with the help of inflow and outflow of cash. If there
is any variation, the same can be corrected.

4. Helpful in devising the cash requirement:

Cash flow statement is helpful in devising the cash requirement for repayment
of liabilities and replacement of fixed assets.

5. Helpful in finding reasons for the difference:

Cash Flow Statement is also helpful in finding reasons for the difference
between profits/losses earned during the period and the availability of cash whether
cash is in surplus or deficit.

6. Helpful in predicting sickness of the business:

Cash flow is helpful in predicting sickness of the business. A sound cash
position is a true indicator of sound financial position.

IMPORTANCE OF CASH FLOW STATEMENT:

1. Short-term financial Planning:

Cash flow statement provides useful information which helps the management in
taking short-term investment decisions. For short term financial analysis, the working
capital position is being studied, cash flow statement provides more relevant
information which helps in forecasting ability of the firm to meets it immediate
obligations

2. Useful in Evaluation of Cash Position:

Cash flow statement is prepared under cash basis of accounting. Therefore, it is useful
in evaluation of cash position. The information of cash flow is used to analyze the
sources of generating and deployment of cash and cash equivalent.
3. Helps in Controlling:
It helps in controlling of cash and financial resources of the firm. A projected cash
flow statement is being prepared and it is being compared with the original cash flow
statement, the deviations are being checked and corrective measures are being taken.
.

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 4. Measurement of Liquidity:
Liquidity means ability of a business enterprise to pay off its liabilities when due.
Cash Flow Statement helps to know about the sources where from the cash will be
available to pay off the liabilities.

5. Dividend Decisions:
The Capacity of the firm to pay dividends to shareholders depends on the generation
of cash flows. Cash flow statement helps the management to know about the sources
of cash to pay off dividend.

6. Prediction of Sickness:
With the help of preparing cash from operation a business enterprise may come to
know about cash losses in operation. It helps to predict this type of sickness.

7. Knowledge of requirement of cash:

Most of the users are interested to assess the ability of the firm in generating future
cash flows, its timing and certainty. These questions can be answered by analyzing
the cash flow statement.

8. The use of cash in investing and financing Transaction:

Information in cash flow statement would be useful to find out as to how cash has
been obtained from investing and financing activities and how cash has been used to
invest and repay borrowings etc. The statement would be useful to users to ascertain
the following:

a) The change in the net assets of the business.

b) The change in the financial structure.
c) The financing of expansion.
d) The utilization of finance obtained by the enterprise.
e) The impact of investing and financing activities on the cash balance of the
enterprise.

PREPARATION OF CASH FLOW STATEMENT

For the calculation of cash inflow and outflow, all the activity of the business has
been classified into 3 categories which are:

• Operating activity
• Investing activity
• Financing activity

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 1. OPERATING ACTIVITY:
The activities which are carried out in normal course of the business are called as operational activity.
The amount of cash flow arising from operational activity indicates the extent to which the operation
of a business has generated sufficient cash to maintain the operating capability of the enterprise,
payment of dividend, repayment of loans and make new investment without seeking for the external
sources of financing. the cash flow from activity are derived from the principle revenue producing
activities of the enterprise.

EXAMPLES:

SOURCES OF CASH INFLOW: SOURCES OF CASH OUT FLOW

➢ Cash sale of goods and services” ➢ Cash purchase of goods.

➢ Cash received from debtors. ➢ Cash paid to creditor.
➢ Cash received from royalty ➢ Advances to employees.
commission fees. ➢ Cash paid for operating activity such
➢ Income tax refund. as salary, rent and commission.
➢ Cash purchase of goods. ➢ Payment to income tax.

NOTE:

The difference between total cash receipt a total cash payment is called as net cash
flow from operating activity.

1. INVESTING ACTIVITY

The transaction relating to sale and purchase of long-term assets and

investment are called as investing activity. Investing activity are the acquisition and
disposal of long-term assets and investment not included in cash equivalent. The
separate discloser flows arising from investing activity is important because the cash
flow represents the extent to which the expenditure is being made for resources
intended to generate future income and cash flow.
EXAMPLES:

SOURCES OF CASH INFLOW: SOURCES OF CASH OUTFLOW

➢ Cash received from the payment of fixed ➢ Purchase of fixed assets in cash
assets both tangible and intangible. including intangible assets.
➢ Cash received from the sale of shares, ➢ Purchase of share and debenture in
debenture, investment and other places. other companies.
➢ Interest and dividend received from ➢ Purchase of government bonds.
investment made from other companies ➢ Loans given to 3rd party

5
 2. FINANCING ACTIVITY:

The activities which cause a change in size and composition of capital and
borrowing of an enterprise are called as financing activity. These activities are useful
predicting of future cash flow by the providers of fund or contributories of capital. T
The separate discloser of cash flow arising from financing activity is important
because it is useful in predicting claims in future cash flow by provider of funds to the
enterprise.

EXAMPLES:

SOURCES OF CASH INFLOW: SOURCES OF CASH OUTFLOW:

➢ Cash receipt from issue of shares. ➢ Buy back of equity shares.

➢ Proceeds from debenture, bond notes. ➢ Redemption of preference share.
➢ Proceeds from long term borrowing. ➢ Repayment of loan.
➢ Payment of interest of loan and debenture.
➢ Repayment of dividend on equity and
preference share.

Direct method
The direct method for creating a cash flow statement reports major classes of gross
cash receipts and payments If taxes paid are directly linked to operating activities, they are
reported under operating activities; if the taxes are directly linked to investing activities or
financing activities, they are reported under investing or financing activities. Generally
Accepted Accounting Principles (GAAP) vary from International Financial Reporting
Standards in that under GAAP rules, dividends received from a company's investing activities
is reported as an "operating activity," not an "investing activity.
FORMAT OF CASH FLOW UNDER DIRECT METHOD

PARTICULAR Details Amount

A. Cash Flow from Operating Activity
Add Cash receipt from customer XXX
Less Cash paid to supplier _
Cash generated from operating activity (XXX)____
XXXX
Less income tax paid
Add Cash flow before extra-ordinary items (XXX)
XXX _________
Net cash flow from operating activity XXXXX
B. Cash Flow from Investing Activity

Add Sale proceeds from fixed assets

Less purchase of fixed assets XXX
Less purchase of long-term investment (XXX)
Add sale proceeds from long term investment (XXX)
Add interest received XXX
Add dividend received XXX

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 Add sale proceeds of tangible and intangible assets XXX
XXX
Net cash used or flowed into firm into investing activity XXXXX

C. Cash flow from financing activity

Add proceeds from issue of share capital

Add proceeds from long term borrowing XXX
Less repayment of long-term loans XXX
Less interest paid (XXX)
Less dividend paid (XXXX)
(XXX) XXXXX
Net cash flow or used in financing activity
XXXX
D. Net increase in cash and cash equivalent
XXXX
Add cash and cash equivalent in the beginning
E. Cash and cash equivalent in the end
XXXXXX

INDIRECT METHOD
Cash flow statement indirect method. The indirect method for the preparation of the
statement of cash flows involves the adjustment of net income with changes in balance sheet
accounts to arrive at the amount of cash generated by operating activities. In this method the
activities are classified into 3 categories. Like operating, investing and financing activities but
the calculation of operating activity differs. As the corporate sector uses accrual basis of
accounting. The net profit disclosed through by the profit and loss account is not the actual
formation, provision, write-offs and non-operating income and expenses. Therefore, such net
profits need to be re adjusted by above method items in order to find out the actual cash flow.

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Format of Cash Flow Statement Under Indirect Method
PARTICULAR Details Amount
A. Net profit before tax or difference between closing and XXX
opening balance of profit and loss account.

B. Add Appropriations and non-operating expenses

Proposed dividend XXX
Interim dividend XXX
Transfer to general reserve XXX
Interest paid XXX
Loss by fire XXX

C. Non-cash expenses
Depreciation XXX
Loss on sale of assets XXX
Provision on tax (current year made) XXX
Preliminary expenses XXX
Discount on issue on share and debenture written off XXX

D. (Less) non-operating income, extra ordinary income

Earthquake (XXX)
Income tax refund (XXX)
Profit on sale of fixed assets (XXX)

E. Operating profit before working capital change

Add
Decrease in current assets XXX
Increase in current liability XXX
(Less)
Increase in current assets (XXX)
Decrease in current liability (XXX)
(Less)
Tax paid (XXXX)
F. Cash flow from operating activity XXX
G. Cash Flow from Investing Activity

Add Sale proceeds from fixed assets XXX

Less purchase of fixed assets (XXX)
Less purchase of long-term investment (XXX)
Add sale proceeds from long term investment XXX
Add interest received XXX
Add dividend received XXX
Add sale proceeds of tangible and intangible assets XXX

Net cash used or flowed into firm into investing activity XXXX

H. Cash flow from financing activity 8

Add proceeds from issue of share capital XXX
 Add proceeds from long term borrowing XXX
Less repayment of long-term loans (XXX)
Less interest paid (XXX)
Less dividend paid (XXX)

Net cash flow or used in financing activity

XXXX
I. Net increase in cash and cash equivalent
XXXX
Add cash and cash equivalent in the beginning
XXXXXX

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 COMPANY PROFILE
NALCO

National Aluminum Company Limited (NALCO) is a Navratna CPSE (Central Public Sector
Enterprise) under Ministry of Mines. It was established on 7th January, 1981 in the Public Sector, with its
registered office at Bhubaneswar. The Company is a group ‘A’ CPSE, having integrated and diversified
operations in mining, metal and power with sales turnover of Rs 9,376 crore in financial year 2017-18.
Presently, Government of India holds 56.59% equity of NALCO.

The Company has a 68.25 lakhs TPA Bauxite Mine & 21.00 lakh TPA (normative capacity) Alumina
Refinery located at Demantoid in Koraput district of Odisha, and 4.60 lakh TPA Aluminum Smelter &
1200MW Captive Power Plant located at Angul, Odisha. NALCO has bulk shipment facilities at Vizag port
for export of Alumina/Aluminum and import of caustic soda and also utilizes the facilities at Kolkata and
Paradeep Ports. The Company has registered sales offices in Delhi, Kolkata, Mumbai, Chennai and
Bangalore and 9 operating stockyards at various locations in the Country to facilitate domestic marketing.

The Company is the lowest-cost producer of metallurgical grade alumina in the World as per Wood
McKenzie report. With sustained quality products, the Company’s export earnings accounted for about 43%
of the sales turnover in the year 2017-18 and the Company was rated 3 rd highest net export earning CPSE
in 2016-17 as per Public Enterprise Survey report.

With its consistent track record in capacity utilization, technology absorption, quality assurance,
export performance and posting profits, NALCO is a bright example of India’s industrial capability.
NALCO is a leading name in the industrial map of Eastern India.

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 Preparation of Cash Flow Statement of NALCO

In crores

Particulars Amount 2018 Amount 2017

A. CASH FLOW FROM OPERATING ACTIVITY

➢ Profit of the period 1342.41 668.53
Adjustments and appropriations
➢ Income tax expenses recognized 696.42 296.19
➢ Finance cost recognized 1.95 2.69
➢ Dividend income recognized in profit and loss (184.79) (292.64)
➢ Net (gain) on sale of non-current investment (33.65) (8.78)
➢ Net (gain) on disposal of property, plant and (13.91) -
machinery
➢ Net (gain) arising on financial assets. (0.44) (0.10)
➢ Impairment loss recognized on other assets (2.96) (77.81)
➢ Inventories of stocks and spares written off 13.43 56.93
➢ Depreciation and amortization of noncurrent 15.98 27.96
assets 480.40 480.36
➢ Net foreign exchange gain or loss 2.55 7.90
B. Operating profit before working capital change 2317.39 1654.37
Add or Less
➢ Increase in inventories
(54.62) (129.56)
➢ Increase in trade receivables
(73.88) 50.96
➢ Decrease in loans and other financial assets
14.62 17.75
➢ Increase in other assets
(23.02) (49.52)
➢ Decrease in trade payables
110.75 200.31
➢ Decrease in other financial liabilities
6.25 21.25
➢ Increase in other liabilities
(766.01) 315.21
417.56 66.74
➢ Increase in provision
1949.04 1654.37
482.48 (218.43)
C. Cash used or generated in operating activities
Income tax 1466.55 1435.94
D. Net cash generated in operating activity
_________________________________________________
A. CASH FLOW FROM INVESTING ACTIVITY (420) (184)
➢ Payment to acquire the financial assets 49.96
1065.03
➢ Proceeds from sales to financial assets
(78.05) (38.47)
➢ Payment to acquire equity in joint venture
➢ Investment in term deposits with bank (326.27) 2183.02
➢ Dividend received from other investment 33.65 8.78
➢ Interest received from banks and others 184.79 292.64
➢ Payment for property plant and equipment

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 ➢ Proceeds from property plant and equipment (790.78) (757.98)
➢ Payment for other in tangible assets 11.82 16.53
➢ (46.57) (20.04)
NET CASH FLOW FROM INVESTING
ACTIVITY (366.38) 1550.34

A. Cash flow from financing activity

- (2834.97)
➢ Payment for buy back of equity share
➢ Payment for share buyback cost - (5.72)
➢ Proceeds from short term borrowing (6.10) 51.09
➢ Finance cost paid (0.13) (0.39)
➢ Dividend paid on equity share (908.48) (686.19)
➢ Tax on dividend paid on equity shares (184.94) (139.69)
NET CASH USED FROM FINANCING
(1099.65) (3615.87)
ACTIVITY

0.52 (629.59)
➢ NET CASH INCREASE IN CASH AND
24.83 654.42
CASH EQUIVALENT
➢ CASH AMD CASH EQUIVALENT AT THE
BIGINNING OF THE YEAR 25.35 24.83
➢ CASH AND CASH EQUIVALENT AT THE
END OF THE YEAR

12
Conclusion
Cash Flow Statement is very important for every organization. It can really determine how the
business should be carried on in the future. We can proper utilize the budget of the company
and the strategy to cope the financial problems of the company through the preparation of the
fund flow statement. As we know the aim of cash flow statement is to know the working
capital of the company whether it increases or decreases during a given period. So, it is a main
tool to make an organization to survive in the future.

Cash Flow Statement gives us a good view of the liquidity of a company. It tells us how much
cash went into and out of the company during a set period of time. A company can show a net
profit and be cash poor. This could be a very early warning sign that serious problems are
developing. Cash from Operating Activities is the important part.

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 BIBLIOGRAPHY
BOOKS
• Amitabha Basu, Financial Accounts, Volume – 3, Edition - August- 2017, accounting
ratios for financial statement analysis, page – 829 – 835.
• Sarat Kumar Sahu, Pradeep Kumar Prusty, Edition – 2017, Fundamental of Management
Accounting, page 4.1 – 4.90
• Pradeep Kumar Prusty, Suresh Chand, Prasad Kumar Sahu: 2018: Nano Publication
Home: Pg. 568-579

WEBSITES

• https://money.rediff.com/index.html
• http://www.business-standard.com/article/companies/make-in-india-in-public-
procurement-companies-bag-rs-50-bn-govt-contracts-118040301360_1.html
• https://www.ibef.org/industry/steel.aspx

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