Resources
What is Fundamental Analysis?
Value Investing
Introduction To Financial Statements
Statement Of Comprehensive Income
Statement of Financial Position
Cash Flow Statement
Statement Of Changes In Equity

Cash Flow Statement

 

The Cash Flow Statement shows how the company generated its cash flows – whether from operating activities or from sources of financing via equity or debt, and how it spent those funds during the accounting period. In other words, the Cash Flow Statement presents the inflows and outflows of funds of a business over a certain period of time.

The Net Operating Cash Flow under Cash Flow From Operating Activities show the total amount of cash generated from a company’s core business operations. The Net Operating Cash Flow is an important indicator of cash flows because it involves actual cash generated from operations and therefore, is deemed harder to manipulate.  This is because a company can show positive net earnings and still not be able to pay its debt due to liquidity problems. For that reason, Net Operating Cash Flow should be used to check on the quality of company’s performance and cash generation capability.  Generally, a positive Operating Cash Flow is a good sign and shows a healthy company, while a negative Operating Cash Flow shows a warning sign of cash flow problems.

The Cash Flow Statement also show the Cash Flow From Investing Activities and Cash Flow From Financing Activities. Cash Flow From Investing Activities show how the company invests in non-current assets such as subsidiary companies, property, plant and equipment, investments and other fixed assets.  Cash Flow From Financing Activities show how the company finances its working capital and capital expenditure over the period.