Financial Analysis Report: Cash Flow Statements and Projections

This report provides a comprehensive financial analysis, focusing on cash flow statements, income statements, and balance sheets. It begins with an executive summary and an introduction to financial accounting, defining the purpose of each statement and their interrelation. The report includes a detailed statement of financial position, a monthly cash flow forecast, and a projected income statement with key financial figures. It further presents a projected statement of financial position and a projected statement of cash flows using the indirect method. The report also investigates methods to increase efficiency and concludes with a summary of the findings, supported by references to relevant financial accounting literature. The analysis highlights the importance of these financial statements in understanding a company's financial health, profitability, and liquidity.

Running head: FINANCIAL ANALYSIS 1
FINANCIAL ANALYSIS

FINANCIAL ANALYSIS 2
Executive summary
Cash flow statement is the statement that is the statement that describes the inflow and the
outflow of the cash. The statement depicts how the change in the items of the balance sheet and
the income statement can affect the financial position of the company. Balance sheet on the other
hand is the financial statement that is used to analyze the assets and the liabilities of the
company, whereas the income statement depicts the information of the income and the expenses.
The analysis of the financial statements is the process of reviewing and analyzing the financial
statements of the company to incur the better economic decisions and earn income. This report
basically determines the analysis of how the cash flow is prepared and what assumptions are
taken to create it.

FINANCIAL ANALYSIS 3
Table of Contents
Executive summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Projected income statement.........................................................................................................................5
Projected statement of financial position.....................................................................................................6
Projected statement of cash flows (Indirect Method)...................................................................................6
Investigations to increase efficiency............................................................................................................7
Conclusion...................................................................................................................................................7
References...................................................................................................................................................8

FINANCIAL ANALYSIS 4
Introduction
In financial accounting the balance sheet or the statement of the financial position is termed as
the summary of the financial balances of an individual organization, firms, company, not profit
organizations. The statement of the financial position is bifurcated into the assets and the
liabilities of the company. The assets side is further bifurcated into the bank balance, current
assets, current liabilities and loans and advances. On the other hand the liabilities side is
categorized as the capital, borrowings, debt, creditors, and current liabilities (O'Hare, 2016).
STATEMENT OF FINANCIAL POSITION
Balance sheet
As at 31st July 20X5
Particulars Amount Particulars Amount
Capital 200000 Bank A/c 50000
Add: net profit 0
Non-Current Assets 150000
200000 200000
In this case scenario, the statement of the financial position includes the amount of the capital
which thee friends have invested in the business and the amount of $150000 that has been used
by the company to purchase the tangible non-current assets. The bank balance left at the
beginning was $50000 (Penman, 2016).
A monthly cash flow projection has been carried out on the basis of the data given. The sales
have been recorded on the monthly basis and the cash receipts have been recorded against the
sales made. Further the adjustment of the tangible asset has also been made as there is an outflow
of the cash.

FINANCIAL ANALYSIS 5
Monthly cash flow forecast table
Particulars JULY
AUGUS
T
SEPTEMBE
R
OCTOBE
R
NOVEMBE
R
DECEMBE
R Total
Cash Inflows
Sales Receipts 150000 120000 150000 210000 260000 285000
117500
0
Cash Outflows
Payments 12000 100000 60000 60000 60000 60000 352000
Labor and other expenses 80000 80000 80000 80000 80000 80000 480000
other expenses 55000 55000 55000 55000 55000 55000 330000
Add: Tangible assets 30000
Net Cash flow 3000 -115000 -45000 15000 65000 60000 13000
Cash balance at the
beginning 50000 53000 -62000 -107000 -92000 3000 63000
Cash balance at the end 53000 -62000 -107000 -92000 -27000 63000 76000
Projected income statement
The income statement is the one of the three important financial statements which basically
depicts the information of the income and the expenses during a particular period. The investors
and the shareholders are basically interested in knowing the profitability of the business and
therefore the income statement depicts how much share the investors will receive after the
payment of all the organizations (Nishikawa, Kamiya and Kawanishi, 2016).
Projected Income statement
(for the months ending at 31st Dec
20X5)
Particulars Amount($)
Sales 1350000
Cost of Goods sold 390000
Gross Profit 960000

FINANCIAL ANALYSIS 6
Less: Expenses
Labor expenses 480000
Other expenses 345000
Depreciation 15000
Net Profit 120000
In this case scenario the income statement has the figures of the sales, cost of goods sold, gross
profit, labor expenses, other expenses, depreciation. The net profit of this venture is $120000,
this means that the company is having enough funds to pay back the creditors and at the same
time is on the stronger front. Further the analysis can also reflect that the cost of goods sold is
29% of the sales and if the friends want to expand the business they can keep the consistency in
the margin (Auerbach, Devereux, Keen and Vella, 2017).
Projected statement of financial position
The projected statement of the financial position is nothing but the extended financial statement.
The changes have been made according to the additional information provided. In this case there
is a liability on the head of the company to pay the tax of $20000. Also the company purchased
the additional tangible asset worth $30000. The treatment of this has been shown in the balance
sheet by adding the amount of the tangible asset in the existing head (Foerster, Tsagarelis and
Wang, 2017).
STATEMENT OF FINANCIAL POSITION
Balance sheet
As at 31st Dec 20X5
Particulars
Amoun
t Particulars Amount
Capital 200000 Bank A/c 63000
Add: net profit 120000
Non-current Assets 135000
Accounts Payable 20000 Add: Fixed Assets 30000
Inventory (bal figure) 112000
340000 340000

FINANCIAL ANALYSIS 7
Projected statement of cash flows (Indirect Method)
Cash flow can be prepared on the basis of the two methods. The first method is using the direct
method and the second method is the indirect method. Under the indirect methods the cash flow
is calculated, starting by net profit. The basic assumption taken while making the cash flow
statements have been outlined below (Miao, Teoh and Zhu, 2016). The cash flow format is also
bifurcated as the cash from operating activities, cash from investing activities and the cash form
the financing activities. Thereafter the net cash is calculated and the last step of this method is to
find out the cash at the end of the year with the help of the balancing figure that eventually
matches with the cash at the end of the balance sheet data (Glaum, Schmidt and Schnürer, 2016).
Investigations to increase efficiency
 The depreciation is added back as it is the non-cash expense.
 The inventories if increased are deducted as there is an outflow of the cash.
 The accounts payable if increased are added as the company is required to pay no cash at
that particular point of time.
 The purchase of the tangible asset depicts the out flow of the cash; hence it is recorded as
a negative figure under the head net cash from investing activities (Ball, Gerakos,
Linnainmaa and Nikolaev, 2016).
Conclusion
From the above analysis it can be concluded that these four statements are prepared in order to
get the entire in-depth analysis of the company. The cash flows tend to be reliable as they depict
the inflows and outflows of the cash, whereas the balance sheet and the income statement will
depict the profitability and the liquidity position of the company.

FINANCIAL ANALYSIS 8
References
Auerbach, A.J., Devereux, M.P., Keen, M. and Vella, J., 2017. Destination-based cash flow
taxation.
Ball, R., Gerakos, J., Linnainmaa, J.T. and Nikolaev, V., 2016. Accruals, cash flows, and
operating profitability in the cross section of stock returns. Journal of Financial
Economics, 121(1), pp.28-45.
Foerster, S., Tsagarelis, J. and Wang, G., 2017. Are Cash Flows Better Stock Return Predictors
Than Profits?. Financial Analysts Journal, 73(1), pp.73-99.
Glaum, M., Schmidt, P. and Schnürer, K., 2016. What Determines Managers' Perceptions of
Cash Flow Forecasting Quality? Evidence From a Multinational Corporation. Journal of
International Financial Management & Accounting, 27(3), pp.298-346.
Miao, B., Teoh, S.H. and Zhu, Z., 2016. Limited attention, statement of cash flow disclosure, and
the valuation of accruals. Review of Accounting Studies, 21(2), pp.473-515.
Nishikawa, I., Kamiya, T. and Kawanishi, Y., 2016. The definitions of net income and
comprehensive income and their implications for measurement. Accounting Horizons, 30(4),
pp.511-516.
O'Hare, J., 2016. Analysing financial statements for non-specialists. Routledge.
Penman, S.H., 2016. The design of financial statements.