The cash flow statement is an important document that shows how cash moves in and out of a company over a certain time period. It splits cash flows into three main categories: operating, investing, and financing. Knowing the differences between these activities can help us understand how healthy a business is financially.
Operating activities are all about the daily running of the business. This part includes cash that comes in and goes out for things like sales and expenses.
For example, when a company sells its products or services, the money it makes is called cash inflow from operating activities. On the other hand, money spent on salaries, rent, and bills is cash outflow from operating activities.
Let’s say a company makes 30,000 on various costs. The cash flow from operating activities would be 50,000 - 20,000.
Investing activities involve buying and selling long-term things the company needs. This includes cash spent on equipment, selling property, or buying another company.
For example, if a company buys a machine for 5,000, that is cash inflow.
When we add these transactions together, the net cash flow from investing activities would be --15,000 + 10,000.
Financing activities are about how the company gets money and pays it back. This includes cash coming in from selling shares or taking out loans, and cash going out to pay back loans or give out dividends.
For example, if a company sells shares for 20,000 loan, that is cash outflow. The net cash flow from financing activities would be 100,000 - 80,000.
By separating cash flows into operating, investing, and financing activities, people can get a clear idea of how the company is doing financially and how well it runs its operations.
The cash flow statement is an important document that shows how cash moves in and out of a company over a certain time period. It splits cash flows into three main categories: operating, investing, and financing. Knowing the differences between these activities can help us understand how healthy a business is financially.
Operating activities are all about the daily running of the business. This part includes cash that comes in and goes out for things like sales and expenses.
For example, when a company sells its products or services, the money it makes is called cash inflow from operating activities. On the other hand, money spent on salaries, rent, and bills is cash outflow from operating activities.
Let’s say a company makes 30,000 on various costs. The cash flow from operating activities would be 50,000 - 20,000.
Investing activities involve buying and selling long-term things the company needs. This includes cash spent on equipment, selling property, or buying another company.
For example, if a company buys a machine for 5,000, that is cash inflow.
When we add these transactions together, the net cash flow from investing activities would be --15,000 + 10,000.
Financing activities are about how the company gets money and pays it back. This includes cash coming in from selling shares or taking out loans, and cash going out to pay back loans or give out dividends.
For example, if a company sells shares for 20,000 loan, that is cash outflow. The net cash flow from financing activities would be 100,000 - 80,000.
By separating cash flows into operating, investing, and financing activities, people can get a clear idea of how the company is doing financially and how well it runs its operations.