Cash Flow Statement

Cash Flow Statement

• tracks the inflow and outflow of cash, providing insights into a company's financial health and operational efficiency

• acts as a bridge between the income statement and balance sheet

Cash Flow Operating (CFO)

reflects how much cash is generated from a company’s products or services

Direct Method

• Cash receipts, interest payments, income tax payments, salary and wages, rent payment, utilities payment, suppliers payment, etc

Indirect Method

Net Income, Depreciation, Amortization, Loss on Sale Equipment, Increase in AR, Decrease in Inventory, Increase in Accounts Payable, Decrease in Accrued Expenses, Changes in Working Capital

Operating Cash Flow (OCF)

• Net Income + Non-Cash Expenses or NOPAT + Non-Cash Expenses

Cash Flow Investing (CFI)

• include purchases of physical assets, investments in securities, or the sale of securities or assets

• The total cash flow from investing in an accounting period is found by adding together both positive and negative investing activities listed on the cash flow statement

Cash Flow Financing (CFF)

• sources of cash from investors and banks, as well as the way cash is paid to shareholders

• This includes any dividends, payments for stock repurchases, and repayment of debt principal (loans) that are made by the company.

Net Cash Flow

• Method 1: Net Income + Non-Cash Expenses

• Method 2: Total Cash Inflows – Total Cash Outflows

• Method 3: CFO + CFI + CFF

Free Cash Flow (FCF)

 cash flow available for distribution among all security holders (debt or equity) of an organization

FCF Formulas

• Method 1: OCF - Changes in Working Capital: This helps to isolate the actual cash flow generated by operations, excluding the effects of fluctuations in short-term assets and liabilities. It provides a clearer picture of cash flow available for debt servicing, dividends, and reinvestment into the business.

• Method 2: OCF - Capital Expenditure: When the company purchases or spends tangible assets. 

• Method 3: EBIT x (1-Tax rate) + Depreciation + Amortization - Changes in Working Capital - Capital Expenditure: This formula calculates Free Cash Flow from an operational perspective before considering the impact of financing activities (like interest expenses). This method provides a clearer picture of the company's ability to generate cash through its core operations, excluding any financing effects.