CFA L1 / FRA / M4. Cash Flow I
Module 4 · FRA

Analyzing Statements of Cash Flows I

EN: Direct vs indirect method, three sections, IFRS vs US GAAP differences.
VN: Phương pháp trực tiếp/gián tiếp, ba phần báo cáo, khác biệt IFRS-GAAP.

1. Three Sections of CFS Concept

About: CFO (core ops), CFI (long-term assets), CFF (capital providers). Sum = Δcash. Healthy mature firm: large positive CFO, negative CFI, neutral/negative CFF.Tóm tắt: CFO (kinh doanh), CFI (đầu tư dài hạn), CFF (tài trợ). Tổng = ΔCash. DN trưởng thành: CFO+, CFI−, CFF±.
  • CFO Operating — core business cash flow.
  • CFI Investing — buying/selling long-term assets.
  • CFF Financing — debt and equity flows with capital providers.

2. Indirect Method — CFO Reconciliation Core

About: Start with NI, add back non-cash items (D&A), reverse working-capital changes. Most-used in practice. Reveals link between accrual NI and cash.Tóm tắt: Bắt đầu từ NI, cộng non-cash, đảo ΔWC. Phổ biến nhất. Cho thấy liên kết NI accrual với cash.
\[ CFO = NI + \text{Non-cash items} + \Delta\text{Working capital} \]

Adjustments

  • + D&A Add back depreciation, amortization.
  • ± G/L Add losses, subtract gains on asset sales (move to CFI).
  • −ΔAR Subtract increase in AR (revenue not yet collected).
  • −ΔInv Subtract increase in inventory.
  • +ΔAP Add increase in AP (purchases not yet paid).
  • +ΔDef. rev. Add increase in deferred revenue.
Practice problem

NI $80, Depr $20, ΔAR +$10, ΔInv −$5, ΔAP +$8, gain on asset sale $3. Compute CFO.

Show solution
CFO = 80 + 20 − 3 − 10 + 5 + 8
CFO = $100

3. Direct Method — Cash Receipts/Payments Core

About: Reports actual cash receipts/payments by category (customers, suppliers, employees). Easier to interpret but more data-intensive — hence rarer.Tóm tắt: Báo cáo trực tiếp dòng tiền thu/chi theo danh mục. Dễ hiểu hơn nhưng cần nhiều dữ liệu — ít phổ biến.
\[ \text{Cash from customers} = \text{Revenue} - \Delta AR \] \[ \text{Cash to suppliers} = COGS + \Delta\text{Inv} - \Delta AP \]

CFO total is the same under both methods — only the presentation differs.

Practice problem

Revenue $500, ΔAR +$30. COGS $300, ΔInventory +$10, ΔAP −$5. Compute cash from customers and cash to suppliers.

Show solution
Cash from customers = 500 − 30 = $470
Cash to suppliers = 300 + 10 − (−5) = $315
Customers $470; Suppliers $315

4. IFRS vs US GAAP Classification Concept

About: Major difference: interest paid/received and dividends paid/received classification varies. IFRS more flexible. Affects CFO comparability across countries.Tóm tắt: Khác chính: lãi và cổ tức (paid/received) phân loại khác nhau. IFRS linh hoạt hơn. Ảnh hưởng so sánh CFO.

Differences

  • Interest paid US GAAP: CFO. IFRS: CFO or CFF (choice).
  • Interest recv. US GAAP: CFO. IFRS: CFO or CFI.
  • Dividends paid US GAAP: CFF. IFRS: CFO or CFF.
  • Dividends recv. US GAAP: CFO. IFRS: CFO or CFI.
  • Taxes US GAAP: CFO. IFRS: usually CFO unless tied to a specific item.

Practice problem Practice

Practice problem

Net income = $100, depreciation = $40, ΔAR = +$15, ΔInventory = −$10, ΔAP = +$5. Compute CFO under the indirect method.

Show solution
CFO = NI + D − ΔAR − ΔInv + ΔAP
= 100 + 40 − 15 + 10 + 5
CFO = $140