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at the end of the previous year were $/£/€0.8 million. The cash inflow arising from sales this year is $/£/€4.8 million ($/£/€0.8 million + $/£/€5 million – $/£/€1 million) whereas the sales figure in the profit and loss account is $/£/€5 million.
    For these reasons it is not possible to look at just this year’s profit and loss account and balance sheet to find all the cash flows; you need the previous year’s accounts too. The balance sheet will show the cash balance at the period end but will not easily disclose all the ways in which it was achieved. Compiling a cash-flow statement is quite a technical job and some training plus inside information is needed to complete the task. Nevertheless, the bulk of the items can be identified from an examination of the other two accounting statements for both the current and previous years.
    From an MBA perspective it is understanding the requirement for a cash-flow statement as well as the other two accounts that is important, as well as being able to interpret the significance of the cash movements themselves.
    XYZ plc
    The un-audited condensed cash-flow statement for XYZ plc, established as a supplier of container solutions for source-separated waste, is shown in Table 1.5 . Initially one man and a desk, the company grew to become a leading supplier of kerbside recycling boxes as well as a key supplier of other types of waste and recycling container solutions. Turnover by 2010 was running at over £30/$47/€34 million a year, with operating profit in excess of £1/$1.6/€1.13 million.
    TABLE 1.5    Un-audited condensed cash-flow statement for XYZ plc (for the 6 months ended 30 June 2011 )
Half year to 30 June 2011
Half year to 30 June 2010
Year 31 Dec 2010
$/£/€’000
$/£/€’000
$/£/€’000
Net cash flows from operating activities
2,242
3,879
1,171
Cash flows from investing activities
Purchases of property, plant and equipment
(603)
(464)
(701)
Proceeds from sale of property, plant and equip
345
–
–
Purchase of intangible assets
(55)
(87)
(193)
Purchase of investments
(35)
–
–
Interest received
28
58
107
Net cash used in investing activities
(320)
(493)
(787)
Cash flows from financing activities
Dividends paid
(310)
(283)
(422)
Proceeds from issue of shares
13
–
128
Net cash used in financing activities
(297)
(283)
(294)
Net increase in cash and cash equivalents
1,625
3,103
90
Cash and cash equivalents at beginning of period
2,126
2,036
2,036
Cash and cash equivalents at the end of period
3,751
5,139
2,126
    The three columns represent the cash activities for two equivalent six-month periods and for the whole of the preceding year. The cash of £2,126 ($3,336/€2,395) thousand generated to 31 December 2010 (bottom of the right-hand column) is carried over to the start of the June 2011 six-month period (second figure from bottom of left-hand column). By adding the net increase (or decrease) in cash generated in this period we arrive at the closing cash position.
    The cash-flow statement then gives us a complete picture of how cash movements came about: from normal sales activities; the purchase or disposal of assets; or from financing activities. This is an expansion of the sparse single figure in the company’s closing balance sheet stating that cash in current assets is £3,751 ($5,886/€4,226) thousand.
    The income statement/profit and loss account
    If you look back to the financial situation in the High Note example you will see a good example of the difference between cash and profit. After all, the business has sold $/£/€60,000 worth of goods that it paid only $/£/€30,000 for, so it has a substantial profit margin to play with. While $/£/€39,108 has been paid to suppliers, only $/£/€30,000 of goods at cost have been sold,meaning that $/£/€9,108 worth of instruments, sheet music and CDs