A Cash Flow Statement Is Worked Out Based On Cash Basis Accounting Essay

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According to the statement of cash flow of G4S, at the end of the first half of the year of 2010, the profit cash flow from continuing operations before taxation is 142.6(£m), and the profit cash flow of first half of the year of 2009 is 129.0(£m), the ratio of these numbers is 1:0.9, the profit of G4S got a promotion .This ratio reflects that, G4S's capability of profitability improved.

Secondly, comparing the profit before taxation and the operating cash flow before movements in working capital

As stated above, the profit before taxation is 142.6(ï¿¡m), and the operating cash flow before movements in working capital is 314.0(ï¿¡m), 142.6 to 314.0 is 0.45, the profit cash flow before taxation shares 45 percent of the operating cash flow before movements in working capital. In the same time of 2009, the profit taxation was 129.0 and net cash flow before movements in working capital was 300.0(ï¿¡m), 129.0 to 300 is 0.43. The higher this ratio is, the better G4S is at operating. This ratio reflects that G4S performed well in core business.

Thirdly, comparing the net working capital movements

Working capitals of G4S of the first half year of 2010 and the first half year of 2009 are 93.3 (ï¿¡m) and 82.5(ï¿¡m), the higher the proportion of working capital is ,the faster the turnover of total capital can be. The working capital of G4S increased from 2009, this can contribute to the operation of G4S.

The analysis of cash flow from investing activities in the year of 2010 and 2009

In the first half of the year of 2010, the influent cash from investing activities is 2.3(ï¿¡m) and the amount of out flow cash from investing activities is 107.6(ï¿¡m), and ,in the first half of the year of 2009, the influent cash from investing activities was 6.7(ï¿¡m) and the amount of out flow cash from investing activities was 133.6(ï¿¡m). It is obviously that, G4S earmark large amount of funds for investing, and a large portion (91.6% in 2010 and 95.2% in 2009)of inventing expenditure is used in capital expenditure, acquisition and disposal, but only a small part (7.5% in 2010 and 7.3% in 2009)of investing expenditure was used to purchase trading investments and own shares. When an enterprise is trying to scale-up or look for the new growth point for profits, it will need a large input of cash flow, and the inflow of cash can not make up the effluent of cash is ubiquitous. However, if the investing activities are effectively, there will be income cash flow as a result of investing to meet the engagements and generate revenue. So, analyzing the cash flow from investment activities, can not just according to the net cash flow income.

The analysis of cash flow from financing activities of 2010 and 2009

As a general rule, with the increase of the amount of influent cash from financing activities, the debt burden of the enterprise will be heavier and heavier. But, if the influent cash flow is mainly from the equity capital the enterprise obtained, the debt burden will not turn heavier, and, the economic strength of the enterprise will enhance. From the cash flow statement, the author learn that, in the first half of the year of 2009, G4S got 99.5(ï¿¡m) by borrowing and 0.1(ï¿¡m) by absorbing equity capital. It is no doubt that, the debt burden of G4S will turn heavier for running into debt. In the first half of the year of 2010, the debt burden of G4S is still heavy (ï¿¡56.7 m by borrowing).

Comparing the net cash flows from operating activities, investing activities and financing activities in the first half of the year of 2010 and 2009

In first half of the year of 2010, net cash flows from operating activities, investing activities and financing activities are 181.4(ï¿¡m), 105.3(ï¿¡m) and 81.0(ï¿¡m).The ratio of these three numbers is 2.24:1.3:1. In that time of 2009, net cash flows from operating activities, investing activities and financing activities were 168.6(ï¿¡m), 126.9(ï¿¡m) and 32.8(ï¿¡m). The ratio is 5.14: 3.87:1. In generally, the enterprise whose net cash flow from operating activities makes up a large part of the total net cash flow of the enterprise has a good managerial state, the financial risk of this enterprise is low and the structure of influent cash of this enterprise is good, too. The net cash flow from operating activities takes a large part (51.3% in 2009 and 49.3% in 2010) in the total net cash flow of G4S, so the business functions of G4S is in good condition..

Comparing cash flow statement and income state statement

Profit and net cash flow are two figures which can reflect the achievements of enterprises in different aspects, and the author can make a concrete analysis of the situation of G4S by comparing the relative figures in cash flow statement and income statement.

In the first half of 2009, net cash flow from operating activities was 186.6(ï¿¡m), and profit from continuing operation before taxation was 129.0 (ï¿¡m). 186.6 : 129.0 is 1.45. In the same time of the year of 2010, profit from continuing operation was 142.6(ï¿¡m) and net cash flow from operating activities was 181.4 (ï¿¡m), 181.4 to142.6 is 1.27. To a certain degree, comparing profit and net cash flow from operating can help the statement users find out the quality of enterprises' profits. That is to say, by comparing, the users can know that how many cash G4S needs to get 1 pound profit. The larger the ratio is, the better the quality of profit is.

By the analysis above, the author can summarize the situation of G4S. G4S invested much capital in investing and financing, in addition, the debt burden of G4S is somewhat heavy. But, on the whole, the situation of G4S is good。