3.0. Core application of data analytics

3.1. Financial Accounting And Reporting

3.1.1.Prepare financial statements; statement of profit or loss, statement of financial position and statement of cash flow for companies and groups

Statement of cash flow

The Statement of Cash Flows is one of the three primary financial statements used by businesses to report their financial performance and provide insight into their cash management activities. The other two primary financial statements are the Income Statement (or Profit and Loss Statement) and the Balance Sheet. The Statement of Cash Flows focuses specifically on an organization's cash flows over a specified period, typically a fiscal quarter or year. Its primary purpose is to provide information about how cash enters and exits the business.

The Statement of Cash Flows is divided into three main sections:

1.Operating Activities:

• This section reports cash flows from the core operational activities of the business. It includes cash received from customers (cash inflows) and cash paid to suppliers, employees, and other operating expenses (cash outflows).
• It helps stakeholders assess the company's ability to generate cash from its day-to-day operations.

2.Investing Activities:

• This section records cash flows related to the acquisition or sale of long-term assets and investments. It includes purchases and sales of property, equipment, investments in other companies, and loans made to or received from others.
• It provides insight into how the company is investing its resources and whether it's making prudent decisions regarding its capital expenditures.

3.Financing Activities:

• This section outlines cash flows related to the company's financing activities. It includes cash received from borrowing (e.g., loans) and cash used for repaying debt, as well as cash received from issuing stock or paying dividends to shareholders.
• It helps stakeholders understand how the company raises capital and manages its financial obligations.

Format for cash flow [Company Name] Statement of Cash Flows For the Year Ended [Year]
Operating Activities: Cash Flows from Operating Activities: Net Income: Adjustments for non-cash items: Depreciation and Amortization: Impairement Gain/Loss on disposal of assets(if included in the profit) Changes in fair value Finance cost Associate profit/Joint venture profit Investment Income/Dividend Income Other Operating Activities: Changes in Operating Assets and Liabilities: Increase (Decrease) in Accounts Receivable: Increase (Decrease) in Inventory: Increase (Decrease) in Accounts Payable: Tax paid Net Cash Provided by Operating Activities:	xx xx xx (xx)xx (xx)xx xx (xx) (xx) xx (xx)xx (xx)xx xx(xx) (xx) xxx. (A)
Investing Activities: Cash Flows from Investing Activities: Cash proceeds from disposals Proceeds from Sale of Investments: Dividend/Interest/Investment Income received Disposal of subsidury net of cash disposed Purchase of Property, Plant, and Equipment: Purchase of Investments: Aquisition of subsidury net of cash aquired Other Investing Activities: Net Cash Used in Investing Activities:	xx xx xx xx (xx) (xx) (xx) xx xxx. (B)
Financing Activities: Cash Flows from Financing Activities: Proceeds from Issuance of Common Stock: Proceeds from issuance of debentures Proceeds from Borrowings (Loans): Payment of Dividends/Interest: Repayment of Borrowings (Loans): Lease rentals paid Other Financing Activities: Net Cash Provided by (Used in) Financing Activities: Net Increase (Decrease) in Cash and Cash Equivalents (A + B + C): Cash and Cash Equivalents, Beginning of Year: Cash and Cash Equivalents, End of Year:	xx xx xx (xx) (xx) (xx) xx xxx. (C) xx xx xx

The Statement of Cash Flows follows the indirect method or the direct method for reporting cash flows from operating activities:

1. Indirect Method: This is the more common method. It starts with net income from the Income Statement and then adjusts for non-cash items (e.g., depreciation and amortization) and changes in working capital (e.g., changes in accounts receivable and accounts payable) to calculate cash flows from operating activities.
   Format:
   

   Operating Activities: Cash Flows from Operating Activities: Net Income: Adjustments for non-cash items: Depreciation and Amortization: Impairement Gain/Loss on disposal of assets(if included in the profit) Changes in fair value Finance cost Associate profit/Joint venture profit Investment Income/Dividend Income Other Operating Activities: Changes in Operating Assets and Liabilities: Increase (Decrease) in Accounts Receivable: Increase (Decrease) in Inventory: Increase (Decrease) in Accounts Payable: Tax paid Net Cash Provided by Operating Activities:

   xx xx xx (xx)xx (xx)xx xx (xx) (xx) xx (xx)xx (xx)xx xx(xx) (xx) xxx. (A)



2. Direct Method: This method directly lists major cash receipts and payments from operating activities. It provides a more detailed breakdown of cash flows but is less commonly used due to its complexity.
   Format:
   

   Operating Activities: Cash Flows from Operating Activities: Cash received Cash paid Gross operating cash flow Tax paid Net Operating Cash flow:

   xx (xx) xx (xx) xxx. (A)

The Statement of Cash Flows is a critical financial statement because it helps stakeholders, including investors, creditors, and management, assess a company's liquidity, its ability to meet short-term obligations, and its cash management strategies. It complements the Income Statement and Balance Sheet by providing a more comprehensive view of an organization's financial health.

Unlocking Financial Insights: How Data Analytics Enhances Cash Flow Interpretation for Stakeholders

Data analytics can play a crucial role in interpreting cash flows to stakeholders by providing insights, identifying trends, and helping stakeholders make informed decisions.

How data analytics can be applied to interpret cash flows effectively:

1. Data Collection and Integration:
   • Gather financial data from various sources, including income statements, balance sheets, and cash flow statements.
   • Integrate data into a central database or platform for easy access and analysis.
2. Visualization:
   • Create visualizations such as charts, graphs, and dashboards to present cash flow data in a clear and understandable manner.
   • Use tools like Excel, Tableau, or Power BI to generate interactive visualizations.
3. Trend Analysis:
   • Analyze historical cash flow data to identify trends over time.
   • Identify patterns in cash inflows and outflows, such as seasonality or cyclical trends.
4. Variance Analysis:
   • Compare actual cash flows to budgeted or projected cash flows.
   • Highlight significant variances and investigate the reasons behind them.
5. Predictive Analytics:
   • Use predictive models to forecast future cash flows based on historical data and other relevant factors.
   • Estimate the impact of different scenarios on cash flow, allowing stakeholders to make more informed decisions.
6. Segmentation and Drill-Down:
   • Segment cash flow data by different categories, such as product lines, geographic regions, or customer segments.
   • Drill down into specific segments to understand the drivers of cash flow within each category.
7. Risk Assessment:
   • Identify potential risks to cash flow, such as changes in market conditions, customer creditworthiness, or supplier relationships.
   • Quantify the potential impact of these risks using data analysis.
8. Key Performance Indicators (KPIs):
   • Define and track KPIs related to cash flow, such as cash conversion cycle, liquidity ratios, and working capital turnover.
   • Monitor these KPIs over time to assess the financial health of the organization.
9. Scenario Analysis:
   • Perform scenario analysis to assess the impact of different business decisions on cash flows.
   • Model the effects of changes in pricing, production volumes, or market conditions.
10. Stakeholder Communication:
    • Use data analytics to prepare reports and presentations for stakeholders.
    • Clearly communicate insights and recommendations based on the analysis.
11. Continuous Monitoring:
    • Implement regular, automated data updates and monitoring to keep stakeholders informed of real-time cash flow changes.
12. Machine Learning and AI:
    • Employ advanced analytics techniques like machine learning and artificial intelligence to uncover hidden insights in cash flow data, such as fraud detection or anomaly detection.
13. Data Security and Compliance:
    • Ensure that data analytics processes adhere to data security and compliance standards to protect sensitive financial information.

By leveraging data analytics in the interpretation of cash flows, organizations can provide stakeholders with a more comprehensive and accurate understanding of their financial performance, enabling better decision-making and risk management.