The statement of cash flows , or the cash flow statement (CFS), is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company. It consists of three major parts
- Cash from operating activities
- Cash from investing activities
- Cash from financing activities
Positive number indicates that money came to company account no matter is it is credit or own money
Cash from operating activities
Cash from operating activities is different from Net income from Statements Of Operations. It happens due to the following corrections
- Non-cash items - not all transactions involve actual cash items, many items have to be re-evaluated when calculating cash flow from operations. For example, depreciation is not really a cash expense; it is an amount that is deducted from the total value of an asset that has previously been accounted for. That is why it is added back into net earnings for calculating cash flow.
- Items that go to other parts. Some items like received interest or paid dividents accounted in financial cash flow activities. They need to be excluded from operational cash flow
- Changes in working capital - if money involved in production cycles they need to be substructed from operational cash flow. Such items include Accounts receivable (Дебиторская задолженность), Inventory (Запасы), Accounts payable (Торговая задолженность), othr taxes and other short-term assets and liabilities
Cash From Investing Activities
Investing activities include any sources and uses of cash from a company's investments. A purchase or sale of an asset, loans made to vendors or received from customers, or any payments related to a merger or acquisition is included in this category. In short, changes in equipment, assets, or investments relate to cash from investing.
The most important item here is Capital expenditures, CaPex (капитальные затраты) - money company spent for assets purchase. Unfortunately, it is unclear which part went for replacing old assets and which for expanding production capabilities.
If company purchase short-term assets such as marketable securities it considers as "cash out" item. However, when a company sells an asset, the transaction is considered "cash in" for calculating cash from investing.
Cash From Financing Activities
Cash from financing activities includes the sources of cash from investors or banks, as well as the uses of cash paid to shareholders. Payment of dividends, payments for stock repurchases, and the repayment of debt principal (loans) are included in this category.
Important indicators for investors
- Free cash flow (Свободный денежный поток) - it's a Cash from operating activities minus Capital expenditures. Free cash flow shows how much money company have to pay it's invesrtors and creditors. Fast growing companies spend most money for inventories and purchasing new assets, for thiss companies free ash flow could be negative.
For fast groving company it is better to use free cash flow before changes in working capital