Cash flows from investing activities
Non-contingent payments on business combinations
(1,450)
(2,564) (2,446)
Payment of contingent consideration from business
combinations 18
(434)
(293) (579)
Purchase of property, plant and equipment
(1,326)
(1,446) (1,328)
Disposal of property, plant and equipment
83
82 47
Purchase of intangible assets
(294)
(868) (1,460)
Disposal of intangible assets
1,376
1,427 1,130
Purchase of non-current asset investments
(96)
(230) (57)
Disposal of non-current asset investments
70
3 93
Movement in short-term investments and fixed deposits
(345)
(166) 283
Payments to joint ventures
10
(76)
(41) (45)
Interest received
164
140 123
Payments made by subsidiaries to non-controlling interests
–
(13) –
Net cash outflow from investing activities
(2,328)
(3,969) (4,239)
Net cash inflow/(outflow) before financing activities
1,250
176 (915)
Statement of cash flows 3011
Cash flows from financing activities
Proceeds from issue of share capital
43
47 43
Issue of loans
1,988
2,491 5,928
Repayment of loans
(1,750)
– (884)
Dividends paid
(3,519)
(3,561) (3,486)
Hedge contracts relating to dividend payments
(20)
18 (51)
Repayment of obligations under finance leases
(14)
(16) (42)
Movement in short-term borrowings
336
(303) (630)
Net cash (outflow)/inflow from financing activities
(2,936)
(1,324) 878
Net decrease in cash and cash equivalents in the period
(1,686)
(1,148) (37)
Cash and cash equivalents at the beginning of the period
4,924
6,051 6,164
Exchange rate effects
(66)
21 (76)
Cash and cash equivalents at the end of the period
16
3,172
4,924 6,051
Having reviewed a variety of requests received from constituents for further guidance
on the classification of cash flows, the Interpretations Committee and the IASB have
observed that the primary principle for classification of cash flows should be in
accordance with the nature of the activity in a manner that is most appropriate to the
business of the entity.4
4.1
Cash flows from operating activities
Operating activities are defined as ‘the principal revenue-producing activities of the
entity and other activities that are not investing or financing activities’. [IAS 7.6]. The
standard states that the value of information on operating cash flows is twofold. It
provides a key indicator of the extent to which the entity has generated sufficient cash
flows from its operations to repay debt, pay dividends and make investments to maintain
and increase its operating capability, without recourse to external sources of financing.
Also, information about the components of historical operating cash flows may assist in
the process of forecasting future operating cash flows, when used in conjunction with
other financial statement information. [IAS 7.13].
Cash flows from operating activities generally result from transactions and other events
that enter into the determination of profit or loss. Examples include: [IAS 7.14]
(a) cash receipts from the sale of goods and the rendering of services;
(b) cash receipts from royalties, fees, commissions and other revenue;
(c) cash payments to suppliers for goods and services;
(d) cash payments to and on behalf of employees;
(e) cash receipts and cash payments of an insurance entity for premiums and claims,
annuities and other policy benefits;
(f) cash payments or refunds of income taxes unless they can be specifically identified
with financing and investing activities; and
(g) cash receipts and payments from contracts held for dealing or trading purposes
(see 4.4.9 below regarding the allocation of cash flows on derivative contracts).
This section is also a ‘default category’ for any cash flows that do not meet the criteria
of investing or financing cash flows. For example, as discussed at 6.3.1 below,
3012 Chapter 36
acquisition-related costs in a business combination that have to be recognised as an
expense, [IFRS 3.53], would also be classified as operating cash flows because there is no
related asset that would justify classification as an investing cash flow. [IAS 7.16].
When an entity holds securities and loans for dealing or trading purposes they are
similar to inventory acquired specifically for resale. Therefore, any related cash flows
are classified as operating activities. Similarly, cash advances and loans made by
financial institutions are usually classified as operating activities, since they relate to the
main revenue-generating activity of that entity (see 7.1 below). [IAS 7.15]. IFRS 17 –
Insurance Contracts, which is effective for periods beginning on or after 1 January 2021,
deletes the requirement in paragraph (e) above from IAS 7.
The proceeds from the sale of property, plant and equipment, which are usually
included in cash flows from investing activities, are an example of an item that enters
into the determination of profit or loss that is not usually an operating cash flow. [IAS 7.14].
However, the proceeds from sales of assets previously held for rental purposes are
classified as cash flows from operating activities if the entity routinely sells such assets
in its ordinary course of business. Similarly, cash payments to manufacture or acquire
property, plant and equipment held for rental to others, and that are routinely sold in
the ordinary course of business after rental, are also classified as cash flows from
operating activities (see 4.4.5 below). [IAS 7.14].
Cash flows from operating activities may be reported on a gross or net basis, also known
as the direct and indirect methods. [IAS 7.18].
4.1.1 The
direct
method
Under the direct method, major classes of gross cash receipts and gross cash payments
are disclosed. [IAS 7.18]. IAS 7 encourages entities to use the direct method, on the
grounds that it provides information which may be useful in estimating future cash flows
and which is not available under the indirect method. [IAS 7.19].
Under the direct method, information about major classes of gross cash receipts and
payments may be obtained either:
(a) from the accounting records of the entity (essentially based on an analysis of the
cash book); or
(b) by adjusting sales, cost of sales (interest and similar income and interest expenses
a
nd similar charges for a financial institution) and other items recognised in profit
or loss for:
(i) changes during the period in inventories and operating receivables and
payables;
(ii) other non-cash items; and
(iii) other items for which the cash effects are investing or financing cash flows.
[IAS 7.19].
Statement of cash flows 3013
The direct method statement of cash flows should include the same disclosures of
gross cash receipts and gross cash payments irrespective of which approach has been
used to determine their value. There is no requirement for entities using the approach
described in (b) above to present a reconciliation showing the adjustments made
between, for example, revenue in the statement of comprehensive income and cash
receipts from customers.
African Rainbow Minerals Limited is an example of an entity using the direct
method for presenting its cash flows from operating activities, as illustrated in
Extract 36.7 below.
Extract 36.7: African Rainbow Minerals Limited (2017)
STATEMENTS OF CASH FLOWS [extract]
for the year ended 30 June 2017
Group
F2017
F2016
Notes
Rm
Rm
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers
9 779
9 671
Cash paid to suppliers and employees
(8 168)
(8 446)
Cash generated from operations
34
1 611
1 225
Interest received
122
111
Interest paid
(247)
(163)
Dividends received from subsidiaries
–
–
Dividends received from joint venture
8
2 488
875
Dividend paid to non-controlling interest – Impala Platinum
(279)
(370)
Dividend paid to shareholders
32
(426)
(761)
Taxation paid
35
(401)
(308)
Net cash inflow from operating activities
2 868
609
4.1.2
The indirect method
The indirect method arrives at the same value for net cash flows from operating
activities, but does so by working back from amounts reported in the statement of
comprehensive income. There are two approaches for presenting the net cash flows
from operating activities when using the indirect method. The most common approach
adjusts reported profit or loss for the effects of:
(a) changes in inventories and operating receivables and payables during the period;
(b) non-cash items such as depreciation, provisions, deferred taxes, unrealised foreign
currency gains and losses, and undistributed profits of associates; and
(c) all other items for which the cash effects are investing or financing cash flows.
[IAS 7.20].
3014 Chapter 36
Anheuser-Busch InBev has used this adjusted profit approach to present its indirect
method statement of cash flows, as illustrated in Extract 36.8 below.
Extract 36.8: Anheuser-Busch InBev NV/SA (2017)
Consolidated statement of cash flows [extract]
For the year ended 31 December
Million US dollar
Notes
2017
2016
OPERATING ACTIVITIES
Profit
9 183
2 769
Depreciation, amortization and impairment
10
4 276
3 477
Impairment losses on receivables, inventories and other assets
130
110
Additions/(reversals) in provisions and employee benefits
178
293
Net finance cost/(income)
11
6 507
8 564
Loss/(gain) on sale of property, plant and equipment and intangible assets
(117)
(4)
Loss/(gain) on sale of subsidiaries, associates and assets held for sale
(47)
(410)
Equity-settled share-based payment expense
26
351
231
Income tax expense
12
1 920
1 613
Other non-cash items included in profit
(284)
(286)
Share of result of associates and joint ventures
(430)
(16)
Cash flow from operating activities before changes in working capital
and use of provisions
21 667
16 341
Decrease/(increase) in trade and other receivables
67
(714)
Decrease/(increase) in inventories
(213)
(364)
Increase/(decrease) in trade and other payables
365
1 251
Pension contributions and use of provisions
(616)
(470)
Cash generated from operations
21 270
16 044
Interest paid
(4 652)
(3 279)
Interest received
811
558
Dividends received
142
43
Income tax paid
(2 141)
(3 256)
CASH FLOW FROM OPERATING ACTIVITIES
15 430
10 110
Alternatively, the indirect method of presentation can show separately revenues and
expenses, adjusted for non-cash, investing or financing items, making up operating
profit before working capital changes. [IAS 7.20]. An example of this rarely used
alternative is given at the end of Appendix A to IAS 7.
When an entity adopts the adjusted profit approach to presenting net cash flows from
operating activities under the indirect method, the reconciliation should start either
with profit or loss before tax (as in Extract 36.6 above) or profit or loss after tax (as in
Extract 36.8 above). Any other basis, such as EBITDA, EBIT, or profit or loss excluding
non-controlling interests, does not meet the requirement in IAS 7 for ‘adjusting profit or
loss’, [IAS 7.20], which includes ‘all items of income and expense in a period’. [IAS 1.88].
To obtain the information on working capital movements for the indirect method, the
figures in the statement of financial position have to be analysed according to the three
standard headings of the statement of cash flows. Thus, the reconciliation of profit or
loss to cash flow from operating activities will include, not the increase or decrease in
Statement of cash flows 3015
all receivables or payables, but only in respect of those elements thereof that relate to
operating activities. For example, amounts owed in respect of the acquisition of
property, plant and equipment (other than assets held for rental and subsequent sale),
intangible assets, or non-operational investments will be excluded from the movement
in payables included in this reconciliation. Although this may not present practical
difficulties in the preparation of a single-entity statement of cash flo
ws, it is important
that sufficient information is collected from subsidiaries for preparing the group
statement of cash flows.
Furthermore, when a group has made an acquisition of a subsidiary during the year, the
change in working capital items will have to be split between the increase due to the
acquisition (to the extent that the purchase consideration was settled in cash, this will
be shown under investing activities) and the element related to post-acquisition
operating activities which will be shown in the reconciliation.
4.2
Cash flows from investing activities
Investing activities are defined as ‘the acquisition and disposal of long-term assets and
other investments not included in cash equivalents’. [IAS 7.6]. This separate category of
cash flows allows users of the financial statements to understand the extent to which
expenditures have been made for resources intended to generate future income and
cash flows. Cash flows arising from investing activities include:
(a) payments to acquire, and receipts from the sale of, property, plant and equipment,
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 597
