Statement of Cash Flows

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Understanding Statement of cash flows is a key part of the finance for dummies on-line course


Statement of Cash Flows
Statement of Cash Flows

 

The Statement of Cash Flows is the third primary financial statement.

This is probably the easiest statement to read as it merely involves cash flowing in and cash flowing out.

To make the statement more useful it seperates cash flows into three catgories:

  1. Operating Activities
  2. Investing Activities
  3. Financing Activities

By operating activities we mean what the company does every day in the normal running of the business. The company buys inventory and sells it – cash flows in and flows out. Paying wages, paying utility bills and advertising are all operating activities.

Investing activities includes buying fixed assets such as plant and machinery, land and buildings. These are investments that will increase the productive capacity of the business. Investing activities do not happen everyday unlike operating activities. We don’t open a new factory everyday.

Financing activities involves how much money the company has borrowed or repaid, has it paid any dividends to shareholders and has it issued any shares to raise capital for new projects.

 

In the above table below are the cash flows of three major companies:

  1. Exxon Mobile
  2. Wal-Mart
  3. Coca-Cola
CASH FLOW
In  Billions Operating Investing Financing
Exxon Mobile 45.1 -27.0 -17.9
Wal-mart 23.3 -12.3 -11.0
Coca-Cola 10.6 -7.5 -3.6

What do you notice about each company’s cash flow.

Look at Exxon’s investing activities – $27 billion!

A huge sum of money – investing in land and buildings in order to carry out its operating activities. This type of expenditure on land, plant and machinery is called capital expenditure or CAP EX for short.

Lets now examine Coca- cola and Walmarts cash flow.

You can see both companies generate huge amounts of cash,  they are called cash cows because thy keep producing cash like a cow keeps on producing milk.

To Summarise

The Statement of Cash Flows, Income Statement and Balance sheet  may not tell you everything about a company, they wont tell you if industrial relations are bad and that a strike is pending – but they are a pretty good starting point if you wish to analyse a company.

 

This on-line course entitled finance for dummies consists of the following lessons:

  1. Finance for dummies
  2. Finance definition
  3. Finance entrepreneurship
  4. What is Accounting
  5. Financial statements
  6. Balance Sheets
  7. Income statements
  8. Statement of Cash Flows
  9. Financial Ratio Analysis
  10. Return on equity
  11. DuPont framework
  12. Dupont analysis case study
  13. Comparison financial statements
  14. operating cycle
  15. cash management
  16. receivables and inventory
  17. how to price a product
  18. calculate break even point
  19. preparing a budget
  20. budgeting steps
  21. understanding income tax
  22. tax brackets
  23. Next move

About the author of this article.
Michael Hughes is the founder and creator of this site on Free Book-keeping IMG_0177Courses Online UK. He is known for his ability to explain book-keeping, accounting and finance in a clear, concise and thorough manner. He has a BA (Hons) in Accounting and Finance and a Teaching Certificate from the University of Manchester.His background includes:-15 years as founder and managing partner of a UK accountancy distance learning company.-11 years as a college lecturer in accountancy.-5 years in HMRC-4 years in public accountancy practice.
His interest and passion includes communicating accounting and finance, and creating free book-keeping courses and imparting his knowledge through the Internet.
Michael lives in Lincolnshire in the UK and he can be contacted by email on frankwood1@o2.co.uk
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