Tuesday, August 30, 2011

Finance and Management - 36

In the last blog, we looked at EBITDA. In today's blog, we would begin with understanding the cash flow statements.

The PnL account or Balance sheet can is limited in informing us about the ability of the firm towards giving us information about the operational financial issues. The best one for this understanding is the "Cash Flow Statement" (CFS). CFS is a financial statement that shows how changes in the balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. It reflects a firm's liquidity.

One can find the cash flow by looking at the 3 aspects which get in cash:
  • Operations
  • Investing
  • Financing

Operations: Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations.

Investing: Changes in equipment, assets or investments relate to cash from investing.

Financing: Changes in debt, loans or dividends are accounted for in cash from financing.

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