102-18 Cash Flow Statement. Investors Guide To Cash Flow

What is a cash flow statement?

A cash flow statement is a financial statement that shows how much cash a company has generated and used during a specific period. The statement is typically used to show a company’s cash inflows and outflows over a period of time, such as a month, quarter, or year.

The cash flow statement can be used to assess a company’s financial health and ability to generate future cash. It is also one of the three primary financial statements (along with the balance sheet and income statement) that provide insights into a company’s financial performance.

Course 102 - Stock Market Investing
Cash Flow Statement. Investors Guide To Cash Flow

How to read cash flow statement

To read a cash flow statement, start by looking at the top line, which shows the company’s total cash inflows. This includes all the money that the company has received from customers, investors, and other sources.

Next, look at the bottom line, which shows the company’s total cash outflows. This includes all the money that the company has paid out for expenses, taxes, and other debts.

Finally, subtract the total cash outflows from the total cash inflows to get the net cash flow for the period. This number will either be positive or negative, depending on whether the company generated more cash than it used during the period.

What does a cash flow statement show?

A cash flow statement shows how much cash a company has generated and used during a specific period. The cash flow statement can be used to assess a company’s financial health and determine whether it can pay its bills.

What are the 3 types of cash flow?

There are three types of cash flow: operating, investing, and financing. Operating cash flow includes all the money a company has received from customers and other sources, minus all the money the company has paid out for expenses.

Investing cash flow includes all the money that a company has invested in assets, minus all the money it has received from selling those assets.

Financing cash flow includes all the money a company has received from investors and other sources, minus all the money it has paid out in dividends and other debts.

Cash flow statement example

Cash Flow Statement For Company Apple

 

(Figures USD)

2021

2022

Net Earnings

500,000

1,000,000

Additions to cash
  Decrease in accounts receivable

5,000

10,000

  Increase in accounts payable

5,000

10,000

  Increase in taxes payable

30,000

50,000

Subtractions from cash
  Increase in inventory

(50,000)

(60,000)

Net cash from operations

490,000

1,010,00

Cash flow from investing
  Equipment

(100,000)

(400,000)

Cash Flow from financing
  Notes Payable

5,000

5,000

Cash Flow

395,000

615,000

This cash flow statement looks very healthy; the amount of cash at the end of the fiscal year 2022 has increased by nearly 50%, from 395,000 to 615,000.

Here we will explain the different elements of the cash flow statement.

How to analyze a cash flow statement

When analyzing a cash flow statement, it is important to remember that cash is not the same as profit. A company can generate cash but still have negative net income (or vice versa). Looking at all three financial statements together is important to get a complete picture of a company’s financial performance.

What are Net Earnings?

Net earnings are the amount of money a company has earned after subtracting all its expenses from its revenue. This figure represents the company’s profit or loss for a given period.

Net Earnings is the amount of cash after-tax left in the business from the previous reporting period. We adjust the cash flow based on revenue, credit transactions, or expenses differences.

What are Additions to cash?

Additions to cash are any inflows of cash that a company experiences during a given period. This may include revenue from sales, investments, or loans. It may also include proceeds from the sale of assets.

What are decreases in accounts receivable?

A decrease in accounts receivable is any cash outflows that a company experiences during a given period. This may include payments made to suppliers, wages, or taxes. It may also include amounts received from customers who have outstanding debts.

A decrease in accounts receivable means that the people who owe the company money have paid off more of their debt, therefore increasing cash flow.

What are increases in accounts payable?

An increase in accounts payable is any cash inflows a company experiences during a given period. This may include payments made to employees, suppliers, or taxes. It may also include amounts received from customers who have outstanding debts.

What is an increase in taxes payable?

An increase in taxes payable is any inflows of cash that a company experiences during a given period. This may include payments made to the government through taxes or payments received from the government through tax refunds.

An increase in accounts payable infers that the company has, for example, purchased goods on credit. Consequently, this is reflected in the balance sheet as a liability and the cash flow as an increase in net sales.

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Subtractions from cash

Subtractions from cash are any outflows of cash that a company experiences during a given period. This may include payments made to suppliers, wages, or taxes. It may also include amounts received from customers who have outstanding debts.

This is one of the essential elements of the cash flow statement. This shows us if the company is selling in line with its production capacity or if it is wasting cash on storing inventory for future sales.

Increase in inventory

An increase in inventory is any cash inflow that a company experiences during a given period. This may include payments made to suppliers, wages, or taxes. It may also include amounts received from customers who have outstanding debts.

Net cash from operations

Net cash from operations is the amount of cash a company has generated from its normal business operations, minus any cash used for capital expenditures. This figure represents the company’s operating cash flow.

Cash flow from investing

Cash flow from investing is the proceeds from the sale of long-term investments, such as:

  • Purchase of long-term investments
  • Proceeds from the sale of short-term investments
  • Purchase of short-term investments
  • Payment for acquisitions
  • Payment for licenses, patents, and other intangible assets
  • Cash payments for capital expenditures

What is Equipment in the cash flow statement?

Equipment is any physical asset a company uses in its normal business operations. This may include items such as computers, vehicles, or office furniture.

Cash Flow from financing

Cash Flow from financing is the amount of cash a company has generated from its financing activities, minus any cash used for capital expenditures. This figure represents the company’s cash flow from financing.

  • Issuance of debt
  • Repayment of debt
  • Issuance of equity
  • Repurchase of equity
  • Notes Payable

Notes payable are any outflows of cash that a company experiences during a given period. This may include payments made to employees, suppliers, or taxes. It may also include amounts received from customers who have outstanding debts.

What is the indirect cash flow statement?

The indirect cash flow statement is a report that shows how a company’s cash flow has changed over a given period. This report can be used to track the company’s overall cash position, and its cash flows from various sources and uses.

Where do dividends go on the cash flow statement?

Dividends go on the cash flow statement as a use of cash. This portion of the company’s cash flow is used to pay its shareholders dividends.


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