Restating the Cash Flows of a Real Business


This chapter commences the more detailed part of the book. The following chapters present everything the financial analyst may require to become fully conversant with historic cash flow analysis.

This chapter seeks to present all the information required by an analyst to summarise and restate an indirect cash flow statement into a common format for analysis.

The restatement process that is described is essentially a technical exercise. Accordingly, this chapter is organised to be as user friendly as possible when read for the first time and easily accessible subsequently when used as a technical reference.


We have a cash flow statement to analyse, how do we go about our task?

There are two possible ways of preparing and presenting a cash flow statement, these are known as the direct method and the indirect method. The first task to ascertain is whether the cash flow is a direct cash flow or an indirect cash flow.

In this chapter we will concentrate on the restatement of indirect cash flows. The reason for this is most of the published cash flows in the world are prepared using the indirect method. Cash flow statements prepared using the direct method are rare. If you wish to know more about direct cash flows at this point Chapter 14 is devoted entirely to direct cash flows.

A direct cash flow is prepared by taking the cash records of the business, coding each cash transaction during the period into ...

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