The Statement of Cash Flows reports the cash that flowed into and from a firm during a time period. Information from the income statement and balance sheet are used to determine:
- How much cash the firm has generated
- How that cash has been allocated during a set period
Amount reported in “Change in Cash” on will be equal to the difference between beginning “cash” and ending “cash” balances on the balance sheet. In other words, cash flow that do not go to shareholders (dividends and decrease in capital) or creditors (interest and loan repayment) end up as company cash.
Cash from operating activities
- Changes in working capital
- deduct the increases in accounts receivable
- add increases in accounts payable
- deduct increases to inventory
- Add depreciation to net income
- Adjust net income by all non-cash items related to operating activities
Cash from investment activities:
- subtract actual capital expenditure
- deduct other assets purchased or investments
Cash from financing activities:
- Subtract dividends paid
- Add cash from sale of stock / deduct cash spent repurchasing own stock
- Changes to short-term and long-term borrowing (new borrowing, repayment of debt)
Sources and Uses of Cash
