Analyzing Cash Flow Statements for Hilton Hotel's Performance

This report provides a comprehensive analysis of cash flow statements, focusing on their concept, the difficulties encountered in their preparation, and their significance in evaluating a company's financial performance, using the example of Hilton Hotel. The report explores the three key activities within a cash flow statement: operating, investing, and financing activities, highlighting their importance in understanding a company's financial health. It discusses the importance of cash flow statements for publicly traded companies and their role in budget preparation and decision-making. The report also addresses the challenges faced in preparing these statements, such as identifying activities correctly, capturing original data, and dealing with non-monetary items. Furthermore, it emphasizes the value of cash flow statements in assessing a company's progress, investment decisions, and overall financial performance, with references to relevant literature.

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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
Concept of cash flow statement..................................................................................................1
Difficulties in preparing cash flow statement.............................................................................2
Value of cash flow for evaluating performance of company .....................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Cash flow statement is a financial document which define all monetary items in a
financial document. It is an important instrument for a company that helps in taking effective and
successful decision within correct period of time (Bodie, 2013). In simple terms, it can be said
that it shows inflows and outflows of cash for certain period of time. This project is based on
Hilton hotel which offer best quality services and provides high quality of products and services
to clients so that their needs or wants can be satisfied. This assignment will explain about the
concept of cash flow statement, difficulties while preparing it and value of same for evaluating
the performance of company.
TASK
Concept of cash flow statement
It is an important document for those companies whose shares are traded publicly. It
discloses to U.S. Securities and Exchange Commission on quarter basis in which all monetary
items are shown. In other words, it can be said that it is a summary of inflow and outflow of cash
in a company over an accounting period.
This document contains all those items which are actually spent or received by the
company that means no accrual basis transaction will be shown in this document. It is made for
analysing the timing, future cash flows, etc. On this basis, Hilton hotel can prepare their budget
easily and effectively. This document contains three types of activities which are explained as
below-
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(Source: The Importance of the Cash Flow Statement, 2016)
 Operating activities- It includes revenue generating activities of business. With the help
of this, new profit or loss can be determined easily and effectively. Investing activities- It includes those transactions which are related to fixed assets like
sale and purchase of property (Bhandari and Iyer, 2013) Financing activities- It includes those items which change the size and composition of
owners' capital or changes in debt like contributions, distributions, etc.
Importance of cash flow statement- In Hilton hotel, there are various ways like internal
and external by which cash come to the company. In order to analyse the profit ratio of firm, it is
necessary that financial officer should make this document so that inflow and outflow of cash
can be known easily and accurately. This document is most important for the company because-
 It helps in analysing debt of company.
 Minimizes unnecessary expenditures from interest, late payment penalties, etc.
 Ensures proper availability of cash
 Aids in taking important decision
So, from the above discussion, it can be said that cash flow statement is important for
company by which it becomes able to take effective and successful decision.
Difficulties in preparing cash flow statement
While designing cash flow statement, finance officer has to face various kinds of
problems that are given hereunder-
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Illustration 1: The Importance of the Cash Flow Statement

 As above discussed that in this statement, several types of activities are written down
(Dickinson, 2011). If authorised person will not be able to identify the activities in a right
manner then document will not present correct and accurate information to company and
thus, effective decision cannot be taken.
 One of the biggest problems of cash flow statement is that original data cannot be
captured easily and effectively.
 This statement ignores non-monetary or accrual based items that create hurdles in
knowing accurate results. It is because; if all items will not be written down in a report
then no one would be able to take effective and successful decision.
 One of the growing problems of cash flow statement is that mostly, companies are
treating their receivables base. In earlier scenario, it is used as collateral for borrowing
and this activity will be considered in financing activity. This concept is beneficial for the
company as it provides various kinds of benefits to Hilton like with the help of this,
accurate debt services can be known as well as activities can be divided into right manner
(Kirkham, 2012).
 While preparing cash flow statement, it is necessary that there should be proper
coordination among team members but it cannot be possible as everyone has different
perception or thinking regarding activities. For someone, one transaction is related to
financial activity and for the other one, same will be related to operational.
 In order to make successful or effective cash flow statement, it is necessary that
organisation should hire experts who have complete practical knowledge about
accounting principles. However, it may prove to be costly for the firm (Problems with
Statements of Cash Flow, 2016).
 While designing cash flow statement, accountant has to face problem in selecting the
format in which all monetary transactions will be written down.
 Sometimes, disturbance can occur in the calculation of transactions by which
organisation will not be able to know about the accurate results or outcomes. So, here,
accountant has to face problem in selection of the best technique for calculation.
 The biggest problem of this statement is that it shows results in gross like pay-off of debt,
insurance, etc. But, at the end of financial year, net amount is written in balance sheet for
getting accurate information regarding performance of company.
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 In cash flow statement, all transactions are written down manually and this input often
does not get same level of examination through management by which critical judgement
can be done properly (Call, Chen and Tong, 2013).
Value of cash flow for evaluating performance of company
From the above discussion, it is clear that cash flow statement is an important document
for Hilton that summarizes all cash related items in one document by which it can take effective
and successful decision. With the help of this financial statement, chosen organisation can
evaluate their own performance easily and effectively. It can do it in the following manner-
 This document contains all expenses and revenue by which it can know about its progress
report. If profitability ratio is more then it will be assumed that company's operations are
going on right track and vice versa (Eshkalak, Aybar and Sepehrnoori, 2014).
 At the end of this statement, closing balance of cash is written down by which
management can take effective decision regarding investment. If closing balance is
higher, then it can be assumed that performance of company is good.
 This financial statement is divided into three parts i.e. financial, operating and investing.
At the end, organisation can know about its performance easily and effectively.
 With the help of this statement, company can take important and effective decision
regarding investment or sales because it has all relevant information in cash flow
statement.
CONCLUSION
From the above discussion, it has been cleared that cash flow statement is an important
document for company which helps in taking effective and successful decision. It describes
inflow and outflow of cash by which organisation ensures the profitability ratio. If receivable
side is more than expenses side, then it is considered that firm is gaining higher profit. It has also
ben articulated that with the help of this financial statement, company can carry out their
operations effectively and smoothly.
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REFERENCES
Books and Journals
Bodie, Z., 2013. Investments. McGraw-Hill.
Bhandari, S.B. and Iyer, R., 2013. Predicting business failure using cash flow statement based
measures. Managerial Finance. 39(7). pp.667-676.
Dickinson, V., 2011. Cash flow patterns as a proxy for firm life cycle. The Accounting Review.
86(6). pp.1969-1994.
Kirkham, R., 2012. Liquidity analysis using cash flow ratios and traditional ratios: The
telecommunications sector in Australia. The Journal of New Business Ideas & Trends.
10(1). p.1.
Call, A.C., Chen, S. and Tong, Y.H., 2013. Are analysts' cash flow forecasts naïve extensions of
their own earnings forecasts?. Contemporary Accounting Research. 30(2). pp.438-465.
Eshkalak, M.O., Aybar, U. and Sepehrnoori, K., 2014, October. An economic evaluation on the
re-fracturing treatment of the US shale gas resources. In SPE Eastern Regional Meeting.
Society of Petroleum Engineers.
Online
Problems with Statements of Cash Flow. 2016. [Online]. Available through: <https://industry-
issues.com/2016/02/01/problems-with-statements-of-cash-flow/>. [Accessed on 9th
October 2017].
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