CIMA F2 Syllabus C. Group accounts - Cashflow statements - Step 2 - Notes ^{3 / 11}

Now we go from Operating Profit to get to Operating Cash .

We do this by taking the profit figure (calculated and reconciled to in step 1) and adding back all the non-cash items (we get to the cash therefore indirectly).

Key point to remember here

The non-cash items we add back are ONLY those in operating profit (Sales, COS, admin and distr. costs).

For example:
Depreciation, amortisation, impairments, profit on sale, receivables, payables and inventory
There could be more - it depends on the question - but dealing with these will ensure you pass

So the operating activities part of the cash flow will now look like this:

Ensure you get the signs the right way around!

For example an increase in stock means less cash so (x).

Notice we added back receivables / payables & Inventory.

This is because credit sales, stock and credit payables are not cash and are in the operating profit figure.

You just need to be careful that you get the signs the right way around as with these we just account for the movement in them.

Think of it like this:

• Increase in Inventory - means less cash - so show as a negative

• Increase in receivables - means less cash now - so show as a negative

• Increase in payables - means don’t have to pay people just yet so an increase in cash - so show as a positive

We have now dealt with the first part of the income statement - Sales, COS, administration expenses and distribution costs. We have indirectly got the cash from these figures by adding back all the non-cash items that may have been in there (as above).

All of this happens in the “Cashflow from Operating Activities” part of the cash-flow statement.