💰 Cash Flow — Definitely Put These in the Extra Set

Why is Cash Flow (CF) important?

Cash flow is one of the most important pieces of information a financial manager can derive from financial statements.

Cash Flow From Assets (CFFA)

The total cash flow generated by the firm's assets.

CFFA Identity

CFFA = Cash Flow to Creditors + Cash Flow to Stockholders.

CFFA Formula

CFFA = Operating Cash Flow − Net Capital Spending − Change in Net Working Capital.

Operating Cash Flow (OCF)

Cash flow generated from the firm's operating activities.

OCF Formula

OCF = EBIT + Depreciation − Taxes.

Net Capital Spending (NCS)

The firm's net spending on fixed assets.

NCS Formula

NCS = Ending NFA − Beginning NFA + Depreciation.

Change in Net Working Capital (ΔNWC)

The change in NWC from one period to the next.

ΔNWC Formula

ΔNWC = Ending NWC − Beginning NWC.

Cash Flow to Creditors

Cash paid to the firm's creditors after accounting for new borrowing.

Cash Flow to Creditors Formula

Interest Paid − Net New Borrowing.

Net New Borrowing

Ending Long-Term Debt − Beginning Long-Term Debt.

Cash Flow to Stockholders

Cash paid to stockholders after accounting for new equity raised.

Cash Flow to Stockholders Formula

Dividends Paid − Net New Equity Raised.

Net New Equity Raised

Ending Common Stock & APIC − Beginning Common Stock & APIC. (APIC = Additional Paid-In Capital.)