 Cash flow analysis

1. What do you mean by cash flow analysis?

Cash flow analysis is the process of examining the inflows and
outflows of cash and cash equivalents within a business over
a specific period. It helps to determine a company’s ability to
generate cash, manage its liquidity, and make informed financial
decisions. Cash flow analysis is essential for businesses to
understand their financial health, identify potential issues, and
make strategic decisions to improve their cash position.
2. What do you mean by: -
Cash flow from operations
Cash flow from investing
Cash flow from financing
Cash flow is the movement of cash into or out of a business over a
specific period. It is essential to understand the different types of cash
flows to analyze a company’s financial health and make informed
decisions. Here’s a breakdown of the three main categories of cash flows:
 Cash Flow from Operations: This category includes cash
generated from a company’s normal business activities, such as:
o Cash received from customers
o Cash paid to suppliers and employees
o Cash generated from the sale of products or services
o Cash used to fund operating expenses
 Cash Flow from Investing: This category includes cash flows
related to a company’s long-term investments, such as:
o Purchases or sales of property, plant, and equipment
o Investments in or divestitures of subsidiaries or joint ventures
o Acquisitions or disposals of assets
 Cash Flow from Financing: This category includes cash flows
related to a company’s financing activities, such as:
o Issuance or repayment of debt (loans or bonds)
o Issuance or repurchase of shares (equity)
o Dividend payments to shareholders
o Repayment of loans or other financial obligations
Understanding these three categories of cash flows helps investors,
analysts, and business owners evaluate a company’s ability to generate
cash, manage its finances, and make informed decisions about
investments and funding.
3. What is free cash flow?
Free cash flow (FCF) is the money that remains after a
company pays for its everyday operating expenses and
capital expenditures. It represents the cash available for a
company to use as it pleases, such as paying dividends, repaying
debt, or investing in growth opportunities.
4. What do you mean by Positive and
Negative cashflow
Positive Cash Flow: Positive cash flow occurs when a company
generates more cash from its operations, investments, and
financing activities than it spends. This means that the company
has a surplus of cash, which can be used to pay off debts, invest
in new projects, or distribute dividends to shareholders. Positive
cash flow is often considered a sign of a healthy and financially
stable business.
Negative Cash Flow: Negative cash flow occurs when a
company spends more cash than it generates from its operations,
investments, and financing activities. This means that the
company has a deficit of cash, which can lead to financial
difficulties, such as debt accumulation, reduced investments, or
even bankruptcy. Negative cash flow can be caused by various
factors, including high operational expenses, poor management,
or unexpected events.
5. Analyse the statement shared with you in
details. What does it say you about the
company's financial position?
Income Statement: The income statement is a report of a
company’s revenues and expenses over a specific period. It
provides information on a company’s profitability, efficiency, and
financial performance. The income statement can indicate a
company’s financial strength by showing its ability to generate
profits, pay dividends, and manage its expenses.
Balance Sheet: The balance sheet is a snapshot of a company’s
financial position at a specific point in time. It presents a
company’s assets, liabilities, and equity. A balance sheet can
indicate a company’s financial health by showing its ability to pay
 its debts, manage its assets, and maintain a stable financial
position.
Statement of Cash Flows: The statement of cash flows shows
the inflows and outflows of a company’s cash over a specific
period. It provides information on a company’s ability to generate
cash, manage its cash flow, and make payments. A statement of
cash flows can indicate a company’s financial strength by
showing its ability to generate positive cash flow, manage its
debt, and maintain a stable financial position.
Financial Ratios: Financial ratios are used to analyze a
company’s financial performance and position. They can indicate
a company’s financial strength by showing its ability to generate
profits, manage its debt, and maintain a stable financial position.
Examples of financial ratios include the debt-to-equity ratio, return
on equity (ROE), and current ratio.
Cash Flow Statement Analysis: A cash flow statement analysis
can indicate a company’s financial strength by showing its ability
to generate positive cash flow, manage its debt, and maintain a
stable financial position. A company with a positive cash flow is
likely to be financially strong and able to pay its debts.
Financial Statement Analysis: Financial statement analysis is
the process of analysing a company’s financial statements to
assess its financial position, performance, and future prospects. It
involves analyzing the income statement, balance sheet, and
statement of cash flows to identify trends, strengths, and
weaknesses.
Annual Report: An annual report is a publication that public
corporations are required to publish annually to shareholders to
describe their operational and financial conditions. It provides
information on a company’s financial position, performance, and
future prospects.
Financial Statement Limitations: While financial statements
provide valuable information about a company’s financial
position, they have limitations. They may not reflect a company’s
true financial position, and they may be influenced by
management’s estimates and judgments.
6. Do a secondary research and collect cash flow
statement of 2 to 6 companies in the below
sector: FMCG FMCD BFSI
Nestle (FMCG):
a. Cash Flow from Operations: CHF 12.4 billion
 b. Cash Flow from Investing: CHF -1.4 billion
c. Cash Flow from Financing: CHF 1.1 billion
d. Net Change in Cash: CHF 12.1 billion
Unilever (FMCG):
e. Cash Flow from Operations: €12.3 billion
f. Cash Flow from Investing: €-1.5 billion
g. Cash Flow from Financing: €1.2 billion
h. Net Change in Cash: €12.0 billion
HDFC Bank (BFSI):
i. Cash Flow from Operations: ₹1,43,144 crore
j. Cash Flow from Investing: ₹-12,444 crore
k. Cash Flow from Financing: ₹11,444 crore
l. Net Change in Cash: ₹1,34,144 crore
Procter & Gamble (FMCG):
m. Cash Flow from Operations: $14.3 billion
n. Cash Flow from Investing: $-2.1 billion
o. Cash Flow from Financing: $1.8 billion
p. Net Change in Cash: $13.9 billion
ICICI Bank (BFSI):
q. Cash Flow from Operations: ₹1,23,111 crore
r. Cash Flow from Investing: ₹-10,111 crore
s. Cash Flow from Financing: ₹9,111 crore
t. Net Change in Cash: ₹1,22,111 crore
Coca-Cola (FMCG):
u. Cash Flow from Operations: $14.9 billion
v. Cash Flow from Investing: $-2.3 billion
w. Cash Flow from Financing: $1.9 billion
x. Net Change in Cash: $14.5 billion

Analyse the cash flow statement and company's

financial stability
Analysing the provided balance sheet data from
March 2020 to March 2024, here's a comprehensive
look at the company's financial stability and cash
flow statement:

Financial Stability Analysis

Equity and Liabilities:
-Shareholder's Funds:
- Equity Share Capital has remained constant at
around ₹46.1 crores.
- Reserves and Surplus have generally increased,
peaking in March 2023 at ₹1,734.61 crores but
slightly declined to ₹1,652.25 crores in March 2024.
This indicates a solid base of retained earnings and
reserves, supporting the company's stability.

-Non-Current Liabilities:
- Long Term Borrowings have fluctuated, showing a
significant reduction from ₹232.8 crores in March
2022 to ₹5.7 crores in March 2023 and a slight
increase to ₹17.02 crores in March 2024. The low
borrowing levels in recent years suggest reduced
reliance on long-term debt.
- Other Long-Term Liabilities and Long-Term
Provisions are minimal, indicating fewer obligations
and potential liabilities.

- Current Liabilities:
- Short Term Borrowings peaked in March 2022 at
₹1,087.10 crores but have since decreased, indicating
an effort to manage and reduce short-term debt.
- Trade Payables and Other Current Liabilities have
shown slight fluctuations, reflecting operational
expenses and payable management.
 - Short Term Provisions significantly increased in
March 2024 to ₹22.97 crores, possibly indicating
anticipated short-term expenses or prudential
provisioning.

Assets:
- Non-Current Assets:
- Fixed Assets have remained relatively stable,
showing slight growth in tangible and intangible
assets.
- Non-Current Investments have shown consistent
growth, from ₹588.5 crores in March 2020 to
₹1,488.38 crores in March 2024, indicating strategic
investments and asset buildup.
- Deferred Tax Assets and Long-Term Loans and
Advances have fluctuated, reflecting changes in tax
treatment and advances.

- Current Assets:
- Current Investments peaked in March 2022 at
₹815.82 crores but decreased subsequently.
- Inventories and Trade Receivables have been
managed within a reasonable range, indicating
efficient operational management.
- Cash and Cash Equivalents have fluctuated,
peaking in March 2022 at ₹120.25 crores and slightly
reducing afterward, reflecting changes in cash
management and liquidity.
Cash Flow Analysis

From the balance sheet data provided:

- Operating Activities:
- The company's reserves and surplus indicate
strong operational profitability. The increase in
provisions suggests prudent financial management,
anticipating future liabilities or expenses.

- Investing Activities:
- The consistent growth in non-current investments
and management of fixed assets indicate strategic
investment for long-term growth and stability.
- Fluctuations in current investments and
inventories reflect active portfolio management and
operational adjustments.

- Financing Activities:
- The reduction in long-term and short-term
borrowings over the years indicates a strategy to
reduce financial leverage and improve the debt-to-
equity ratio.
- Changes in trade payables and other current
liabilities reflect operational efficiency and timely
settlements.

Company Financial Stability

- Liquidity Position:
 - The company's liquidity position appears solid,
with sufficient cash and cash equivalents and
manageable current liabilities.
- The management of short-term borrowings and
increasing provisions indicate a focus on maintaining
liquidity and preparing for contingencies.

- Solvency Position:
- The reduction in long-term borrowings and
increase in reserves and surplus highlight a strong
solvency position.
- The steady growth in shareholders' funds and non-
current investments supports long-term financial
health.

Forecast for Next 2 Years

Positive Indicators:
- The company's strong reserve base and reduced
borrowings suggest continued financial stability.
- Strategic investments in non-current assets and
consistent operational profitability indicate potential
for sustained growth.