The statement of cash flows consists of three main parts
- operating
- finance
- investment
details a company’s cash inflows and outflows
Statement of cash inflows
cash flow from the production and sale of goods and services
operating activities
What does a negative operating cash flow indicate
operational inefficiency
What are examples of investment activities
- buying or selling stock or securities
- buying or selling of property such as buildings or machinery
- Collection of loans
What does positive cash flow from financing activities indicate
The company is raising funds through financing activities such as issuing debt or equity
cash flows related to raising capital and repaying investors and creditors
Financing activities
Examples of financing activities
- issuing or repurchasing stock
- Taking out and paying off loans
shows how much cash it generates from core business activities
Free Cash Flow
derived from a company’s financial data and are employed for comparison
Financial Ratios
A company’s ability to pay off its short-term liabilities
Current Ratio
a company’s ability to pay off its short-term liabilities with quick assets ( liquid assets)
Quick Ratio
shows the net cash amount of cash and cash equivalents that move into and out of a company over a period of time
Net Cash Flow
indicates how much debt a company is using to finance its operations relative to the amount of equity
Debt to Equity Ratio
show how efficiently a company utilizes its assets to generate revenue
Asset Turnover Ratio. Total Sales/Total Assets
Tells us how much a company sold off or turned over the entire inventory
Inventory Turnover Ratio. Cost of Goods Sold/Total Equity
shows how much profit a company makes per dollar of assets
Return on Assets. Net Income/Total Assets
measures how effectively a company is generating profits from the equity
Return on Equity Ratio. Net Income/Total Equity
What is the most basic measure of risk
Variability
