Cashflow Statement Analysis

Cash flow statement analysis is one of the method of understanding the cash inflow as well as cash outflow of any organization. Cash flow statement analysis become more important to understand the cash inflow as well as outflow of the company. This paper discusses about the indirect method of preparing cash flow statement and performs the cash flow analysis of Colgate- Palmolive Company for the year 2018 and 2017. It also highlights the importance of cashflow statement for understanding financial position of companies.

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CASHFLOW STATEMENT ANALYSIS
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1CASHFLOW STATEMENT ANALYSIS
Cash flow statement analysis is one of the method of understanding the cash inflow as well as
cash outflow of any organization. Cash flow statement analysis become more important to
understand the cash inflow as well as outflow of the company (Williams & Dobelman, 2017).
Cash flow statement provides detailed information about from where company generates its
cash and where they allocates that cash. Cash flow statement is classified into 3 parts, those
are: - Cashflow from operation, Cashflow from investment and Cashflow from financing.
There are two method of preparing the cash flow statement, first one is Direct method and
second one is Indirect method. Direct method is most commonly used method of preparing
cash flow statement (Bradbury, 2011). Here, this paper discuss about the indirect method of
preparing cash flow statement. The paper perform the cash flow analysis of Colgate-
Palmolive Company for the year 2018 and 2017.
Colgate’s Cash Flow from Operation: - The cashflow from operating activity of Colgate
reveals that company generated the net income for the year of $ 2558 in 2018 and $ 2174 in
2017 that means company is moving in right direction and showing growth in current year
compare to last year (Colgatepalmolive, 2019). There is nothing more in this part of cash
flow hence the cash effect of changes in Receivables, Inventories are increased in current
year compared to the last year while the account payables is decreased in the 2018 compared
to 2017. This cash effect of changes is Receivable, Inventories, Account payables is positive
for the company and shows the growth of the Colgate. Apart from that there are some other
items are also reported by the company in the operating activity of the firm. These items
directly affect the net profit of the firm as Depreciation and Amortisation is subtracted from
the Net Income of company. Hence, this items negatively affect the net profit of the
company. On other hand, Restructuring and termination benefits are added to Net profit of
firm. Hence, this items positively affects the net profit of firm. Lastly, the Net cash provided

2CASHFLOW STATEMENT ANALYSIS
by the operation of the firm is more or less same in both the year with the figure of $ 3056 in
2018 and $ 3054 in 2017.
Importance of Cashflow Statement for understanding financial position of companies: -
A Cashflow statement is very important to understand the any company’s financial position.
Cashflow statement provides the information related to source of company’s cash along with
the allocation of those generated cash of the firm. This also provides information about the
various income and expenditure of the company for the given period (Bhandari & Iyer,
2013). This also provides the information about the Cashflow from Operation, Cashflow from
Investment and Cashflow from Finance separately that, helps to understand the each financial
activity of the firm in better way and more clearly.
The Cashflow Statement and its analysis is very important for company as well as its
stakeholders to understand the financial performance of company in more better and clear
way. This provides the information about the source of cash for the company as well as the
information regarding the allocation of such cash in the activities of the firm.

3CASHFLOW STATEMENT ANALYSIS
References
Bhandari, S. B., & Iyer, R. (2013). Predicting business failure using cash flow statement
based measures. Managerial Finance, 39(7), 667-676.
Bradbury, M. (2011). Direct or indirect cash flow statements?. Australian Accounting
Review, 21(2), 124-130.
Colgatepalmolive. (2019). Retrieved from
https://investor.colgatepalmolive.com/static-files/8856158d-04ae-4770-a979-
dbdf4db2559b
Penman, S. H., & Penman, S. H. (2007). Financial statement analysis and security
valuation (Vol. 3). New York: McGraw-Hill.
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific
Book Chapters, 109-169.

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Appendix