CONSTRUCTING FINANCIAL STATEMENTS 75
Table 6.5 Cash Flow statement
Net cash inflow from operatingactivities (see Note 1) 115,000
Interest paid −16,000
Taxation (see Note 2) −12,000
Capital expenditure −100,000
Dividends paid (see Note 2) −25,000
Cash outflow before use of liquid resources and financing −38,000
Additional borrowing 50,000
Increase in cash 12,000
Note 1:
Operating profit before interest and tax 100,000
Depreciation charge 20,000
Stock increase (10,000)
Debtors’ increase (15,000)
Creditors’ increase 20,000
Net cash flow from operating activities 115,000
Note 2:
Taxation and dividends are not the same as the amounts shown in the Profit
and Loss account earlier in this chapterbecause of timing differences between
when those items are treated as expenses and when the cash payment is made,
which is normally after the end of the financial year.
An example of a cash flow statement is shown in Table 6.5.
The management of working capital is a crucial element of cash management.
Working capital........................................
Working capital is the difference between current assets and current liabilities (or
creditors). In practical terms, we are primarily concerned with stock and debtors,
although prepayments are a further element of current assets. Current liabilities
Purchase goods on credit CREDITORS Pay suppliers
outflow
STOCK BANK
inflow
Sell goods on credit DEBTORS Receive money
Figure 6.1 The working capital cycle