Questions on statement of cash flow

[Some-one]

I understand that in a cash flow statement, when it is (negative), it means outflow of cash and when it is positive, it means inflow of cash. However, I realised from some annual reports that bracket is used to denote increase.

The following shows a snippet from the Annual Report 2012 for PEC Ltd. The left side shows FY2012 and the right side shows FY2011. My question is why is it that bracket is used to denote increase in cashflow?


Operating cash flows before changes in working capital 39,243,095 59,107,522
(Increase)/Decrease in contracts-in-progress (42,318,518) 1,789,475
Decrease/(Increase) in inventories 177,390 (484,137)
(Increase)/Decrease in trade and other receivables, and prepayments (21,577,906) 11,015,633
Increase/(Decrease) in trade payables, other payables and accruals, and provisions 12,030,882 (24,831,569)

[TheMillennium]

Bracket means negative.

Accounting people use bracket instead of - sign.

Perhaps a small dash sign like -
people might think its a pencil mark or some scribbling.

[safetyfirst]

let me attempt to explain...

(Increase)/Decrease in trade and other receivables, and prepayments (21,577,906) 11,015,633
Increase/(Decrease) in trade payables, other payables and accruals, and provisions 12,030,882 (24,831,569)

when there is an increase in trade receivables, you are allowing your customers to pay you late, so the () denotes a decrease in cashflow

when there is an increase in trade payables, you are delaying payment to your suppliers, so there is increase in cashflow and therefore no brackets

A similar logic for contracts in progress & inventories.

Try reading an accounting text for more examples, it has to do with reconciling many other items that make up the net profits

[Some-one]

Bracket means negative.

Accounting people use bracket instead of - sign.

Perhaps a small dash sign like -
people might think its a pencil mark or some scribbling.

Are you saying that the bracket does not denote outflow of cash? The statement is found in statement of cashflow. Even if what you said is correct, the statement puts (increase) so does negatives means increase of cashflow?

[TheMillennium]

For me, as long as I see bracket in cashflow statement, I just think of it as cash outflow.
Perhaps I'm wrong, so you should wait for other people's opinion.

[Some-one]

let me attempt to explain...

(Increase)/Decrease in trade and other receivables, and prepayments (21,577,906) 11,015,633
Increase/(Decrease) in trade payables, other payables and accruals, and provisions 12,030,882 (24,831,569)

when there is an increase in trade receivables, you are allowing your customers to pay you late, so the () denotes a decrease in cashflow

when there is an increase in trade payables, you are delaying payment to your suppliers, so there is increase in cashflow and therefore no brackets

A similar logic for contracts in progress & inventories.

Try reading an accounting text for more examples, it has to do with reconciling many other items that make up the net profits

if () denotes a decrease in cashflow, why is it put as increase? See bold.

[cif5000]

let me attempt to explain...

(Increase)/Decrease in trade and other receivables, and prepayments(21,577,906) 11,015,633
Increase/(Decrease) in trade payables, other payables and accruals, and provisions 12,030,882 (24,831,569)

when there is an increase in trade receivables, you are allowing your customers to pay you late, so the () denotes a decrease in cashflow

when there is an increase in trade payables, you are delaying payment to your suppliers, so there is increase in cashflow and therefore no brackets

A similar logic for contracts in progress & inventories.

Try reading an accounting text for more examples, it has to do with reconciling many other items that make up the net profits

if () denotes a decrease in cashflow, why is it put as increase? See bold.

It says increase in trade and other receivables, and prepayments.
Not increase in cash.

[Some-one]

let me attempt to explain...

(Increase)/Decrease in trade and other receivables, and prepayments(21,577,906) 11,015,633
Increase/(Decrease) in trade payables, other payables and accruals, and provisions 12,030,882 (24,831,569)

when there is an increase in trade receivables, you are allowing your customers to pay you late, so the () denotes a decrease in cashflow

when there is an increase in trade payables, you are delaying payment to your suppliers, so there is increase in cashflow and therefore no brackets

A similar logic for contracts in progress & inventories.

Try reading an accounting text for more examples, it has to do with reconciling many other items that make up the net profits

if () denotes a decrease in cashflow, why is it put as increase? See bold.

It says increase in trade and other receivables, and prepayments.
Not increase in cash.

So the interpretation should be "increase in trade and other receivables means a decrease in cash"? Assuming that this interpretation is correct, for FY2011 results, is it interpreted as "decrease in trade and other receivables means an increase in cash"?

Another question. If the increase in receivables means a decrease in cash as the company has not collected the payment from the client, why does a decrease in receivables means an increase in cash for FY2011 since both means that the company has not collected the payment from the client?

[kazukirai]

So the interpretation should be "increase in trade and other receivables means a decrease in cash"? Assuming that this interpretation is correct, for FY2011 results, is it interpreted as "decrease in trade and other receivables means an increase in cash"?

Another question. If the increase in receivables means a decrease in cash as the company has not collected the payment from the client, why does a decrease in receivables means an increase in cash for FY2011 since both means that the company has not collected the payment from the client?

My simple way of understanding this is:
- Since B/S is calculated on a stock basis. When comparing year to year, any decrease in receivables means that Co. has collected more cash than any increases in what clients owe.
- Hence cash inflow to co. increases.

[specuvestor]

let me attempt to explain...

(Increase)/Decrease in trade and other receivables, and prepayments(21,577,906) 11,015,633
Increase/(Decrease) in trade payables, other payables and accruals, and provisions 12,030,882 (24,831,569)

when there is an increase in trade receivables, you are allowing your customers to pay you late, so the () denotes a decrease in cashflow

when there is an increase in trade payables, you are delaying payment to your suppliers, so there is increase in cashflow and therefore no brackets

A similar logic for contracts in progress & inventories.

Try reading an accounting text for more examples, it has to do with reconciling many other items that make up the net profits

if () denotes a decrease in cashflow, why is it put as increase? See bold.

It says increase in trade and other receivables, and prepayments.
Not increase in cash.

So the interpretation should be "increase in trade and other receivables means a decrease in cash"? Assuming that this interpretation is correct, for FY2011 results, is it interpreted as "decrease in trade and other receivables means an increase in cash"?

Another question. If the increase in receivables means a decrease in cash as the company has not collected the payment from the client, why does a decrease in receivables means an increase in cash for FY2011 since both means that the company has not collected the payment from the client?

It is bracketed because it means "inverse". Increase in item means decrease in cashflow.

So yes increase in receivables means cash has not been received yet but does NOT mean cash decrease because net cash impact from WORKING CAPITAL is not just based on receivables. It is based on PAYABLES and INVENTORIES or WIP as well. It is also impacted by write offs so any decrease in recievables may just mean write offs in the extreme case.

So you have to read the cash impact in totality.