Cash Flow Analysis
CASH FLOW AND FINANCIAL PLANNING:
A. ANALYZING A FIRM’S CASH FLOW
THE STATEMENT OF CASH FLOW
“Cash flow, the lifeblood of the firm, is the primary ingredient in any financial valuation model.”
- the summary of a firm’s cash flow over a given period, which uses the data from income statement, along with the beginning and end of period balance sheets.
- allows the financial manager and other interested parties to analyze the firm’s cash flow
- used to evaluate progress toward projected goals or to isolate inefficiencies
*financial manager also can prepare a statement of cash flows developed from projected financial statements to determine whether planned actions are desirable in view of the resulting cash flows
*manager should pay special attention both to the major categories of cash flow and to the individual items of cash inflow and outflow, to assess whether any developments have occurred that are contrary to the company’s financial policies
DEVELOPING THE STATEMENT OF CASH FLOWS
o analysts typically lump cash and marketable securities together when assessing the firm’s liquidity because both represents a reservoir of liquidity: “increased by cash inflow and decreased by cash outflows”
o Cash Flow Catergories:
Operating Flows – generated from a company’s normal operations such as the sale and production of firm’s products and services or the “operating activities”
The amount of cash that is generated by doing what you do.
How much cash is generated by making, selling or providing services or products to your customers. These are the activities or accounts found on Income statement.
All Cash Received – All Expenses for the Month
Investment Flows – associated with purchase and sale of both fixed assets and equity investments in other firms or the “investing activities”
• Inflows: Sales transactions
• Outflows: Purchase transactions
The amount of cash flow generated by your equipment or vehicle purchases, or any
A. ANALYZING A FIRM’S CASH FLOW
THE STATEMENT OF CASH FLOW
“Cash flow, the lifeblood of the firm, is the primary ingredient in any financial valuation model.”
- the summary of a firm’s cash flow over a given period, which uses the data from income statement, along with the beginning and end of period balance sheets.
- allows the financial manager and other interested parties to analyze the firm’s cash flow
- used to evaluate progress toward projected goals or to isolate inefficiencies
*financial manager also can prepare a statement of cash flows developed from projected financial statements to determine whether planned actions are desirable in view of the resulting cash flows
*manager should pay special attention both to the major categories of cash flow and to the individual items of cash inflow and outflow, to assess whether any developments have occurred that are contrary to the company’s financial policies
DEVELOPING THE STATEMENT OF CASH FLOWS
o analysts typically lump cash and marketable securities together when assessing the firm’s liquidity because both represents a reservoir of liquidity: “increased by cash inflow and decreased by cash outflows”
o Cash Flow Catergories:
Operating Flows – generated from a company’s normal operations such as the sale and production of firm’s products and services or the “operating activities”
The amount of cash that is generated by doing what you do.
How much cash is generated by making, selling or providing services or products to your customers. These are the activities or accounts found on Income statement.
All Cash Received – All Expenses for the Month
Investment Flows – associated with purchase and sale of both fixed assets and equity investments in other firms or the “investing activities”
• Inflows: Sales transactions
• Outflows: Purchase transactions
The amount of cash flow generated by your equipment or vehicle purchases, or any