Analysis of cash flow statement with Drägerwerk AG as an example

. Usually, the normal development of the enterprise because of the daily business transactions constantly, need to estimate the cash flow of the enterprise, so that the enterprise decision-makers grasp the current development of the enterprise, real-time evaluation of the enterprise, so as to make decisions for the enterprise. According to International Accounting Standard (IAS) 7, the cash flow statement reflects the addition and subtraction of cash flow. The main purpose of cash flow statement is to provide information about the financial situation of an enterprise, including the source and use of funds, for decision makers and investors of an enterprise. Cash flow statement is an important index to measure the sustainable development of enterprises and the main factor to measure the financial strength of enterprises. As an integral part of financial statements, cash flow statement can reflect the net assets of enterprises with fair value, and show the operating results and financial status of enterprises through flow changes. It provides a reference for enterprises to test whether they can fulfill their payment obligations, pay dividends and pay dividends to investors. In this context, cash flow statement plays an increasingly important role in the development of enterprises. In order to make a better economic decision, we must study the cash flow statement in an all-round way. Firstly, it studies what information can be disclosed in the cash flow statement. The second research problem discusses the direct method and indirect method for calculating cash flow. Considering that cash flow statement is an important financial statement of an enterprise, any enterprise needs cash flow statement to help enterprise management and investors make decisions. Therefore, the third problem is the specific calculation of cash flow statement and the matters needing attention in the application process.


Essential characteristics of cash flow statement
In addition to the balance sheet and income statement, the cash flow statement, management report, notes, segment report and statement of use of equity together constitute the financial statements of the Company. IAS 7 requires the statement of cash flows to reflect only all inflows and outflows of cash and cash equivalents. Therefore, it is also considered to be a special form of financial statement reflecting the liquidity of financial situation. Cash flow statement also plays an important role in personal and consolidated financial statements. As an information tool, it can provide information about all cash transactions over a period of time and their impact on cash and cash equivalent margin. It is precisely because of these characteristics of cash flow statement that external investors and managers can clearly obtain the information of enterprise cash flow and make decisions on the basis of cash flow statement.

Concept of cash flow
Cash flow is the net inflow of cash that affects changes in cash over a period of time (usually a financial year, that is, one year). Therefore, other income and expenses that did not have an impact on cash during the reporting period were not included in the cash flow. Such as depreciation of fixed assets, depreciation of intangible assets, reversal of provisions, etc. Cash flow within an enterprise mainly comes from three aspects, namely, cash flow from operating activities, investment cash flow (CFI) and financing cash flow (CFF).

Cash flow type
Cash flow generated from daily business activities refers to all transactions involved in normal daily business activities of enterprises that may cause cash changes. Business activities mainly include selling goods and services, collecting rent, repaying debts with cash, paying wages to workers, collecting taxes, interest income and interest expenses, donation activities, etc.
Cash flows from investment activities mainly record the increase or decrease of all cash in the investment department. For example, invest in real estate, plant and equipment of other companies. It is also an investment in financial products, such as stocks, funds, fixed assets investment and capital preservation investment.
The cash flow generated from financing activities essentially refers to the long-term financial transactions between the company and shareholders and creditors. This cash flow shows the amount of net cash the company receives from new equity and debt, such as: B. Capital increase, or from new loans, after deducting all payments to investors, such as dividends to shareholders, repayment of loans, repayment of bonds. That is, the capital inflow generated by enterprise financing activities mainly includes the inflow of raising funds and the inflow generated by bank loans. Funds received. The outflow of funds from financing activities mainly comes from the payment of cash dividends, the repayment of loan principal and the funds paid by stock repurchase.

Direct cash flow method
Cash flow statement is one of the indispensable financial statements inside and outside an enterprise. Business decision makers and outside investors pay close attention to the cash flow statement. According to IAS 7, the cash flow statement is calculated by direct method and indirect method.
Direct method is a calculation of cash flow statement, which can reflect the source and direction of cash flow of enterprises. For example, accounting activities such as paying wages to employees, purchasing raw materials, and repaying debts.
Direct method refers to presenting all kinds of cash flows through the main income and expenditure categories of cash flows, starting from the operating income in the income statement, adjusting the increase or decrease of related items and calculating cash flows.

Direct cash flow accounting
The direct cash flow method is more suitable for calculating the profitability of investments than the indirect cash flow method because it does not require the use of a balance sheet. The following table shows how it is calculated.  Table 1 shows the direct method of cash flow. However, due to the change of market price, the allocation principle of intangible assets or fixed assets will change. Therefore, the method of calculating cash flow directly and indirectly is more suitable in practice.

Indirect cash flow method
Indirect method is another method to calculate cash flow. Enterprise leaders and investors can clearly understand the cash flow of enterprises in the cash flow statement calculated by indirect method, so as to make better decisions.
The indirect method calculates cash flow from net profit. In calculating cash flow, income and expenses excluding cash, such as depreciation and accounts receivable, are deducted or added.

Indirect cash flow accounting
The following  Table 2 shows the indirect method of cash flow. Indirect method can see the source and destination of funds more intuitively, but indirect method can only calculate the cash flow generated by business activities. The cash flow generated by investment and financing can only be obtained by direct method.
To sum up, only by fully combining direct method with indirect method can we know the changes of enterprise cash flow more accurately. Only in this way can we better reflect the financial situation of the company. Business decision makers and outside investors can make more informed decisions.

Introduction to Drägerwerk AG
Drägerwerk AG was founded in 1889 in Lubeck and is owned by the family. Drägerwerk AG is a global leader in medical and safety technology. Drägerwerk AG's products, such as respirators, are designed to support and save more lives. It is also a recognized brand in the field of global security technology. As the coronavirus disease (COVID-19 pandemic) continued to spread around the world in 2019, Drägerwerk AG helped maintain key facilities in Germany and deployed a large number of employees for health care work.

Financial situation of Drägerwerk AG in 2020
Cash flow refers to the funds that can be used by the company itself without borrowing or borrowing from outside the company, and without requiring investors to inject capital into the company. These funds will be used for the further operation and management of the company. Changes in these funds are reflected in the cash flow statement. Cash flow statement, as a part of financial statements, plays an important role in the formulation and development of enterprise decision-making. Therefore, the analysis of enterprise cash flow statement can help the decisionmaking and progress within the enterprise.
As mentioned earlier, the inflow and outflow of cash flow are introduced from three aspects: operating activities, investment and financing.
In 2020, Drägerwerk AG received a positive cash inflow of nearly 460 million euros from its business activities. This is mainly due to the increased profitability of Drägerwerk AG's cash. In its investment activities, Drägerwerk AG's net cash outflow even reached 263.1 million euros. Among them, current assets and fixed assets invest the most. In terms of financing, Drägerwerk AG had a cash inflow of 114.3 million euros. This mainly includes proceeds from borrowings and proceeds from capital increase.

Changes in cash flow in the past three years
In order to better understand the development of Drägerwerk AG in recent years and the impact of COVID-19 pandemic, it is meaningful to analyze the cash flow statement of the past three years.
Affected by the rapid spread of COVID-19 pandemic in recent years, the cash flow generated by Drägerwerk AG's operating activities in 2019 increased by more than 40 times compared with that in 2018, which is a very rapid development. The cash flow generated from operating activities in 2020 has nearly tripled compared with 2019. Although the number is still increasing, the speed is relatively flat compared with 2019, which is related to the effective control of COVID-19 pandemic. Drägerwerk AG invested abroad during the three-year period from 2018 to 2020, resulting in negative investment cash flow and increased investment in these three years. Investment expenditure is mainly fixed assets and non-current assets. In the past three years, the cash flow generated by financing activities has also changed. The cash flow generated by financing in 2018 is negative. The financing situation in 2019 is the worst in the past three years. Cash flow generated from financing in 2020 mainly includes cash from acquisition of ownership interests of subsidiaries and proceeds from borrowing. See Annex 1 for detailed data.

Cash flow statement in notes to financial statements
Cash inflows and outflows of Drägerwerk AG are detailed in the notes. The reasons for any changes in cash, direction and amount are clearly described. The notes also highlight the reasons why the cash flow changes in Drägerwerk AG's cash flow statement do not correspond directly to the balance sheet. That is, due to exchange rate changes and accounting event adjustments, no cash flow changes have been caused. If the decision-makers or investors of an enterprise want to know more accurately how each cash flow changes in the enterprise, they can refer to the notes of the enterprise. It will contain all the useful information.
Drägerwerk AG uses indirect method to prepare cash flow statement. Indirect methods facilitate the provision of information. Therefore, Drägerwerk AG can easily assess the financial situation of the company.The indirect method based on the current profit can reflect the difference between the cash flow of operating activities and the current income, and give the corresponding reasons. Therefore, in practice, indirect method is a common method to calculate cash flow.

Executive summary
The cash flow statement shows the development of enterprise cash flow. The funds shown in the cash flow statement can be used to invest in working capital, invest in fixed assets, repay creditors' debts and pay dividends to investors. Therefore, it can also reflect the financial situation of the company.
Cash flow statement, income statement and balance sheet serve as the basis for investors and company decision makers to conduct financial evaluation and evaluation. In order to protect the company's sustainability objectives, these financial statements should be prepared on the basis of business plans. In the daily business activities of an enterprise, the internal and external cash flow statements of the enterprise shall be measured. Internally, by monitoring the company's cash flow direction, the company's management can help make decisions. Externally, the cash flow statement can help investors decide whether to invest in a company. To sum up, cash flow statement plays an important role in enterprises, so we should make full use of cash flow statement to promote the development of enterprises. Source: According to https://www.draeger.com/corporate/content/annual-report-2020-p6ehyb4 Gdk.pdf, accessed on Dec. 31, 2021