What is cash flow?
Movement of cash into and out of a firm
Why is cash flow important?
A firm can be profitable but still go bankrupt without cash
What are the 3 types of cash flow?
Operating, Investing, Financing
What is operating cash flow (OCF)?
Cash generated from core business operations
OCF formula (basic)?
EBIT + Depreciation − Taxes
Why is depreciation added back in OCF?
It is a non-cash expense
What is net cash flow?
Total cash inflow minus total cash outflow
Net cash flow formula?
OCF − Investment in assets − Financing payments
What does positive net cash flow mean?
Firm is generating more cash than it spends
What is free cash flow (FCF)?
Cash available to investors after investments
Why is FCF important?
Shows ability to pay dividends and repay debt
Free cash flow formula?
OCF − Capital expenditures − Change in working capital
What are capital expenditures (CAPEX)?
Money spent on long-term assets
What is working capital?
Current assets − current liabilities
What is change in working capital?
Difference in working capital between periods
Increase in working capital effect on cash?
Decreases cash
Decrease in working capital effect on cash?
Increases cash
Increase in assets means?
Cash outflow (−)
Decrease in assets means?
Cash inflow (+)
Increase in liabilities means?
Cash inflow (+)
Decrease in liabilities means?
Cash outflow (−)
What does the statement of cash flows show?
How cash is generated and used
Operating activities include?
Core business cash flows
Investing activities include?
Buying/selling long-term assets
