Cash Flow Statement
Why is a cash flow statement important?
It provides insights into a company’s liquidity, solvency, and financial health.
What are the three main sections of a cash flow statement?
Operating activities, investing activities, and financing activities.
What does the operating activities section include?
Cash flows from primary business operations, such as sales and expenses.
What does the investing activities section include?
Cash flows from the purchase and sale of long-term assets and investments.
What does the financing activities section include?
Cash flows related to borrowing, repaying debt, and equity transactions.
How is cash flow from operating activities calculated?
By adjusting net income for changes in working capital and non-cash items.
What is the direct method for calculating cash flows?
A method that lists all cash receipts and payments from operating activities.
What is the indirect method for calculating cash flows?
A method that adjusts net income for changes in non-cash items and working capital.
What are non-cash items?
Expenses or revenues not involving cash transactions, like depreciation.
What is free cash flow?
The cash available after capital expenditures for reinvestment or distribution to shareholders.
How is free cash flow calculated?
Operating cash flow minus capital expenditures.