Liquidity-Statement OF Cash Flow Report Example

Financial statement is a set of document issued by an organization for their users, in which information related to the performance and position is duly recorded in terms of financial figures. Financial statements usually comprises on four things known as income statement, balance sheet, cash flow statement and changes in equity. Each of these elements of financial statement has somewhat different information related to the company. A Cash flow statement has the information related to cash inflow and outflow of the company. In this part of the report, a cash flow statement is required in which cash flow from operating; financing and investing activities would be duly included followed by the ratios that lead to affect the liquidity of the company.

The computed cash flow for years 0 and 1 are as follows, made after the critical analysis of information provided

Ratio Analysis
There are numerous ratios that will be interactive and powerful specifically in the cash flow analysis, and it is required to use some of them here

Operating Cash Flow Ratio

Operating cash flow ratio is basically a combination of operating cash flow and current liabilities of an organization. The operating cash flow ratio of year 0 and year 1 is computed as follows
Cash Flow from Operating Activities Year 0 = 1,200,666
Cash Flow from Operating Activities Year 1 = 1,887,642
Current Liabilities Year 0 = 235,060
Current Liabilities Year 1 = 681,053
Operating Cash Flow Ratio Year 0 = 1,200,666/235,060 = 5:11
Operating Cash Flow Ratio Year 1 = 1,887,642/681,053 = 2:77

Cash Flow Margin

A ratio in which the operating cash flow would be divided with net sales is known as Cash Flow Margin (CFM). It basically analyzes that how much cash flow generated through the net sales in a given financial year
Cash Flow from Operating Activities Year 0 = 1,200,666
Cash Flow from Operating Activities Year 1 = 1,887,642
Net Sales Year 0 = 3,941,195
Net Sales Year 1 = 5,886,498
Cash Flow Margin Year 0 = (1,200,666/3,941,195) * 100 = 30%
Cash Flow Margin Year 1 = (1,887,642/5,886,498) * 100 = 32%

Current Ratio Analysis

A ratio that analyzes the capability of a company in terms of managing its short term financial obligations is known as Current Ratio. The ratio is basically a combination of Current Assets and Current Liabilities
Current Assets Year 0 = 223,311
Current Assets Year 1 = 917,740
Current Liabilities Year 0 = 235,060
Current Liabilities Year 1 = 681,053
Current Ratio Year 0 = (223,311/235,060) = 0:95
Current Ratio Year 1 = (917,740/681,053) = 1:34

Quick Ratio

It is same as Current Ratio, however the amount of inventory should be subtracted from the current assets, rest of the option will remain the same
Current Assets – Inventories Year 0 = 223,311 – 13,483 = 209,828
Current Assets – Inventories Year 1 = 917,740 – 31,750 = 885,990
Current Liabilities Year 0 = 235,060
Current Liabilities Year 1 = 681,053
Quick Ratio Year 0 = (209,828/235,060) = 0:89
Quick Ratio Year 1 = (885,990/681,053) = 1:30

Analysis

There are four different ratios which have been considered to conduct this particular analysis. The annual operating cash flow reported that the company is enjoying remarkable capability in terms of generating cash flow which clearly depicts the strong financial stability of the company to realize all of their interim financial challenges. According to company’s financial analysis, the total Operation cash flow (OCF) for the year 0 and 1 are 5:11 and 2:77 respectively, showing high capability of the entity as far as directing their cash flow operations are concerned.
The second ratio selected for the same analysis is cash flow margin, which analyzes the level of margin of cash generated through the net sales of the company. The cash flow to sales margin of the company was 30% in the year 0 which increased by 200 basis points to reach on the level of 32% a year after, shows a high percentage of cash generation through the sales of the company.
Current Ratio and Quick Ratio are the ratios that have been used specifically to analyze the stance of meeting current obligations. Moreover, both current and quick ratios, which are showing in financials come under the psychological level of 1 in the year 0, but increased to a higher level in year 1 showing that the company is competent enough to meet all the interim financial commitments. From this entire analysis, it has been clearly apparent that the company is in the position to manage its all financial promises in highly effective manner highly effective, with positive operating cash flow. It will certainly bring more effectiveness in the potential financial structure of the entity.