Explain the Financial Forecast of a Cash Flow Statement

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The Answer is The cash flow statement has three components: net cash flow from operating activities,net cash flow from investing activities,and net cash flow from financing activities.Under IFRS,the net cash flow from operations would have already been adjusted from the net profit figure.The first item in operating cash flows is profit before taxation,which comes straight from the income statement.To this,depreciation is added back.Since the accountants have subtracted it in determining net income,it needs to be added back.Investment in working capital is then subtracted,because it costs the firm money to increase its working capital.Increases in inventories,trade receivables and other current assets (except cash)are cash outflows for the firm,and are thus subtracted.Money that the company spends on plant and equipment,or buying other companies,is an investment cash outflow.The investing cash flows should tie to the balance sheet items,particularly property,plant and equipment (PPE).Consequently,if net PPE is forecasted directly,then (New PPE - Old PPE + Depreciation)should be used as the cash outflow in the investing cash flow section.Note that,since this is a cash outflow,the depreciation here exactly offsets the depreciation used above in the operating cash flow section.Paying off debt represents a financing cash outflow,and borrowing represents a financing cash inflow.For forecasting purposes you may wish to look only at the net change in debt.Payment of dividends represents a cash outflow,sale of equity is an inflow,and buying equity back is an outflow.

Explain the Financial Forecast of a Cash Flow Statement

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