The Three Parts of Cash Flow Statements Explained
Cash Flows from Operating ActivitiesHere you'll find how much money the company received from its actual business operations.
Cash Flows from Investing ActivitiesThis section shows how much money the company has received (or lost) from its investing activities. It includes money that the company has made (or lost) by investing its excess cash in different investments (stocks, bonds, etc.), money the company has made (or lost) from buying or selling subsidiaries, and all the money the company has spent on its physical property, such as plants and equipment.
Cash Flow from Financing ActivitiesThis is where the company reports the money that it took in and paid out in order to finance its activities. In other words, it calculates how much money the company spent or received from its stocks and bonds. This includes any dividend payments that the company made to its shareholders, any money that it made by selling new shares of stock to the public, any money it spent buying back shares of its stock from the public, any money it borrowed, and any money it used to repay money it had previously borrowed.
Free Cash FlowWhile free cash flow doesn't receive as much publicity as earnings do, it is considered by some experts to be a better indicator of a company's bottom line. Free cash flow is the amount of cash that a company has left over after it has paid all of its expenses, including investments. Whereas earnings reports are subject to a number of different accounting tricks which can artificially boost the bottom line, free cash flow is not. It is quite possible, for example, for a company to have positive earnings and negative free cash flow. Negative free cash flow is not necessarily an indication of a bad company, however; many young companies tend to put a lot of their cash into investments, which diminishes their free cash flow. But if a company is spending so much cash, you should probably be investigating why it is doing so and what sort of returns it is earning on its investments.
By InvestorGuide Staff
Posted in ...Business