Based on changes in the operating assets and liabilities from the beginning of the year to the end of the year, Figure 2.5 shows how the businesss cash flow from operating activities would be presented in its statement of cash flows for the year. The indirect method starts with net income for the year, then adjusts net income for the cash flow effects due to changes in the assets and liabilities that are directly connected Continue reading…
The first section of the statement of cash flows, called cash flow from operating activities (which is not the best designation in the world, in my opinion), reports the cash increase or decrease during the year from sales revenue and expense activities. This key figure also is called operating cash flow or cash flow from profit. To be frank, this is not an easy number to understand. In Figure 2.4, I present cash flow from operating activities about as briefly and simply as you can. Cash inflow from sales revenue was $25.7 million during the year, and cash outflow for expenses was $22.4 million during the year, which yields the Continue reading…