FIN 004: Financial Management

Module #3 Student Activity Sheet

Lesson Title: Financial Analysis Part 1 Material: SAS

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Learning Targets: Reference:

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At the end of the module, students will be able to: Timbang, Ferdinand (2018). Financial
1. Identify the different types of financial statements

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Management.

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2. Describe different methods of presenting operating,
financing, and investing cash flows

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Productivity Tip:

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You just begin doing an activity and then your motivation kicks in. Nike was right with “Just do it.” Sometimes
we need to take actions and do things we do not completely yet believe in, but we know have worked for

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others. Familiar with, “If others can, why can’t I?”? Just do it. Good luck!

A. LESSON PREVIEW/REVIEW

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Introduction M
Key Takeaways
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● Financial Statements are written records that convey the business activities and the financial
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performance of a company
● The Balance Sheet provides an overview of assets, liabilities, and stockholders' equity as a
snapshot in time
● The Income Statement primarily focuses on a company’s revenues and expenses during a
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particular period. Once expenses are subtracted from revenues, the statement produces a
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company's profit figure called Net Income

● The Cash Flow Statement (CFS) measures how well a company generates cash to pay its debt
obligations, fund its operating expenses, and fund investments.
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B. MAIN LESSON
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Content and Skill-Building

Topic # 1 What Are Financial Statements?

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Financial statements are written records that convey the business activities and the financial
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performance of a company. Financial statements are often audited by government agencies,

accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes.

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 FIN 004: Financial Management
Module #3 Student Activity Sheet

Complete set of Financial Statements

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1. Balance Sheet

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Also known as the Statement of Financial Position. The balance sheet is composed of the
company’s assets and liabilities and stockholders’ equity.

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2. Income Statement

It is an official statement that shows the result of the operations for a certain period of time. It

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presents the revenues generated during the operating period, the expenses incurred, and the

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company’s net earnings.

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3. Statement of Stockholders’ Equity

a. Issuance of Stocks. These are the common or preferred stocks issued during the year.
b. Retained Earnings. It is the accumulated income or loss of the company covering the past years

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of operations.
c. Declaration of Cash Dividends. The dividends declared for the year are shown as a deduction
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from retained earnings.
d. Distribution of Stock Dividends. It discloses the stock dividend rate and the amount of stock
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dividends distributed to stockholders. This amount is also shown as a deduction from retained
earnings.
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e. Accumulated Other Comprehensive Income. This category includes unrealized gains and losses
on available-for-sale investments and foreign-currency translation adjustments.

4. Statement of Cash Flow (SCF)

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Type of activity Nature of transactions

1. Operating activity ● Has an impact on profit or loss

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2. Investing activity ● Has an impact on non-current assets and other

non-operating assets
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3. Financing activity ● Has an impact on non-current liabilities, other

non-operating liabilities and equity.
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 FIN 004: Financial Management
Module #3 Student Activity Sheet

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Cash flows from/for Alternative 1 Alternative 2

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1. Interest income received Operating activity Investing activity

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2. Interest expense paid Operating activity Financing activity

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3. Dividend income Operating activity Investing activity
received

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4. Dividend paid to owners Financing activity Operating activity

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Components of SCF

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GENERALLY caused
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by changes of:
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Method of
presentation
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Direct Method:
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It shows each main class of gross cash receipts and gross cash payments.

Cash flows from operating activities:

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Cash receipts from customers xx

Cash paid to suppliers and employees (xx)
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Cash generated from operations xx

Interest paid (xx)
Income taxes paid (xx)
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Net cash from operating activities xx

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 FIN 004: Financial Management
Module #3 Student Activity Sheet

Indirect Method:

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It modifies accrual basis profit or loss for the effects of changes in operating assets and liabilities
and effects of non-cash items.

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Under the Indirect Method, accrual basis profit is converted to cash basis profit (i.e., cash flow from

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operating activities) as follows:

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Accrual basis profit xx

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Add: Non-cash expense xx

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Less: Non-cash income (xx)
Add: Decreases in current assetsxx

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Less: Increases in current assets (xx)
Add: Increases in current liabilities xx
Less: Decreases in current liabilities (xx)
Cash basis profit / Cash flow from

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Operating activities xx
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What are the examples of cash flows from Operating Activities?
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a. Cash receipts from the sale of goods and the rendering of services;
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b. Cash receipts from royalties, fees, commissions and other revenue;

c. Cash payments to suppliers for goods and services;
d. Cash payments to and on behalf of employees;
e. Cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other
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policy benefits;
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f. Cash payments or refunds of income taxes unless they can be specifically identified with financing and
investing activities; and
g. Cash receipts and payments from contracts held for dealing or trading purposes (e.g., cash payments
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for purchases of and cash receipts from sale of financial assets and financial liabilities that are held for
trading).
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What are the examples of cash flow from Investing Activities?

h. Cash payment for the acquisition and subsequent capitalizable costs for property, plant and equipment,
intangibles and other long-term assets;
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i. Cash receipts from sales of property, plant and equipment, intangibles and other long-term assets;
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j. Cash payments to acquire equity or debt instruments of other entities and interests in joint ventures
(other than payments for instruments considered as cash equivalents or held for dealing or trading
purposes);
k. Cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures
(other than receipts for instruments considered as cash equivalents or held for dealing or trading
purposes);

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 FIN 004: Financial Management
Module #3 Student Activity Sheet

l. Cash advances and loans made to other parties (other than advances and loans made by a financial
institution);

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m. Cash receipts from the repayment of advances and loans made to other parties (other than advances
and loans of a financial institution);

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n. Cash payments for futures contracts, forward contracts, option contracts and swap contracts except
when the contracts are held for dealing or trading purposes, or the payments are classified as financing

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activities; and

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o. Cash receipts for futures contracts, forward contracts, option contracts and swap contracts except
when the contracts are held for dealing or trading purposes, or the receipts are classified as financing
activities.

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What are the examples of Financing Activities?

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p. Cash proceeds from issuing shares or other equity instruments;
q. Cash payments to owners to acquire or redeem the entity’s shares
r. Cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short or long-term

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borrowings;
s. Cash repayments of amounts borrowed; and M
t. Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.
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5. Notes to Financial Statement
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It encompasses a summary of accounting policies and other explanatory notes. The notes is a vital
part of the financial statement. It presents:
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o Present information about the basis of preparation of the financial statements and the specific
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accounting policies
o Disclose the information required by PFRSs that is not presented somewhere else in the financial
statements; and
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o Provide information that is not presented elsewhere in the financial statements, but is relevant to
an understanding of any of them.
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 FIN 004: Financial Management
Module #3 Student Activity Sheet

Check for Understanding

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Try to finish the exercises before going through the key to corrections on the last page. This will help in
checking if you have understood the lessons in this module before going to the next module.

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Time to unleash your mathematical skills!

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Exercise 1.

Use the following information in answering the questions below:

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Madali Lang Company uses the direct method to prepare its statement of cash flows. The company had
the following cash flows during 2020:

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Cash receipts from the issuance of ordinary shares 400,000
Cash receipts from customers 200,000
Cash receipts from dividends on long-term investments 30,000
Cash receipts from repayment of loan made to another entity 220,000

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Cash payments for wages and other operating expenses 120,000
Cash payments for insurance M 10,000
Cash payments for dividends 20,000
Cash payments for taxes 40,000
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Cash payment to purchase land 80,000
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1. The net cash provided by (used in) operating activities is

a. 60,000 b. 40,000 c. 30,000 d. (20,000)

2. The net cash provided by (used in) investing activities is

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a. 220,000 b. 140,000 c. 60,000 d. (80,000)

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3. The net cash provided by (used in) operating activities is

a. 580,000 b. 410,000 c. 380,000 d. (60,000)
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C. LESSON WRAP-UP
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Frequently Asked Questions

1. What are Non-cash Transactions?

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Only those that have resulted to actual cash inflows or outflows are included in the statement
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of cash flows. Those that did not result to actual cash flows are excluded and disclosed elsewhere in the
financial statements.

For instance, when an entity acquires a building by paying a cash down payment and issuing a
note payable for the balance, only the cash down payment will be included in the statement of cash flows.
The issuance of note payable is disclosed as a non-cash transaction.

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 FIN 004: Financial Management
Module #3 Student Activity Sheet

Examples of non-cash transactions that are excluded from the statement of cash flows are:

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● Acquisition of non-cash assets by issuance of note payable or disposal of non-cash assets in

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exchange for a receivable.
● Acquisition of non-cash assets in exchange of another non-cash asset or by issuance of equity

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instruments.

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● Declaration and issuance of property or stock dividends.
● Declaration of cash dividends but paid in subsequent years.
● Receipt of subscriptions for equity instruments but collected in succeeding year.

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2. What is the difference between “Cash Provided in Cash Flow Activities” and “Cash Used in Cash

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Flow Activities”?

There are two classes of cash flows – cash inflows and cash outflows. Cash inflows are cash
receipts and cash outflows are cash payments. When cash inflows exceed cash outflows, in the

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end, you have cash provided in any of your cash flow activities. Otherwise, if cash outflows are
more than cash inflows, you have a lot of cash used in your activities. For example, in an investing
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activity, if you have sold your lot for P3.5M but you have incurred P3.8M capitalizable costs for it,
then you have P300, 000 cash used in your investing activity.
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3. Can a cash flow have a negative balance?

Yes, this happens when you have more cash leaving your business than you have cash coming
in. You must cut your costs and increase your cash flow.
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Thinking about Learning

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Congratulations for finishing this module! Shade the number of the module that you finished.
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Did you have challenges learning the concepts in this module? If none, which parts of the module helped you
learn the concepts?
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Some question/s I want to ask my teacher about this module is/are:

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 FIN 004: Financial Management
Module #3 Student Activity Sheet

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Answer Key

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