CashFlow Statement

Question 1

What is CFS

Answer 1

It shows how the business is financed. Cash flow is the net cash and cash equivalents transferred in and out of a company.
1-Operating Cashflow; directly related to the daily trading of business
2- Investing Cashflow, buying/selling fixed assets, long-term assets, buying/selling businesses
3- Financing Cashflow: issuing debts, paying debts, issuing shares, shares buyback, = Net Cashflow

Question 2

Hand full of questions, if you were to pick up CFS

Answer 2

• How different is the bottomline figure of Cashflow and P&L.
• Is operating Cashflow positive?
• If business is not making profit, why?

-Investing cashflow what’s the business buying and why?
-Is the money going out for buying companies, or single assets?
- Are we replacing existing assets to survive or expanding the business?
- Is this subsistence fixed asset expenditure or expanding the business?
Financing Cashflow
- What sort of financing coming in & where it’s going?
- is the business issuing shares, buying back shares.
- If business is raising shares, why so? You don’t want to see Business raising long term source of capital ( new shares etc) simply to keep itself afloat.

Question 3

What do many people consider to be the net operating cash flow?

Answer 3

Many consider Company’s net operating cash flow to be the sum of its net income, depreciation, and amortisation (non-cash charges in the income statement),+ Changes in Working Capital.
However, this interpretation can be inaccurate, and investors should stick with using the net operating cash flow figure from the cash flow statement.

Question 4

How do you calculate the Cash Flow to Sales Ratio and what does it say?

Answer 4

Operating Cash Flow/Net Sales. This ratio tells us how many dollars of cash are generated for every dollar of sales. A cash flow statement tracks the inflow and outflow of cash, providing insights into a company’s financial health and operational efficiency.

Question 5

How do you measure revenue growth?

Answer 5

It is essential to monitor how cash flow increases as sales increase since it’s important that they move at a similar rate over time. If the flow through is negative then business might have problems.

Question 6

What is Free Cash Flow?

Answer 6

Free Cash Flow Free cash flow (FCF) is the net operating cash flow minus capital expenditures. It shows how efficient a company is at generating cash. Investors use free cash flow to measure whether a company might have enough cash, after funding operations and capital expenditures, to pay investors through dividends and share buybacks

Question 7

How to calculate FCF

Answer 7

To calculate FCF from the cash flow statement, find the item cash flow from operations—also referred to as “operating cash” or “net cash from operating activities”—and subtract capital expenditures required for current operations from it. In addition to capital expenditures, you could include dividends for the amount to be subtracted from net operating cash flow to arrive at a more comprehensive free cash flow figure.

Question 8

What does a positive cash flow means & how can it be used?

Answer 8

Company is generating more cash than it is using and can be used for;
-Paying off debts,
-Investing in new projects,
-Increasing dividends for shareholders.

Question 9

What does a negative cash flow means?

Answer 9

A negative cash flow indicates that a company is using more cash than it is generating resulting in;
- Leading to financial stress
- Need to seek external funding.

Question 10

Why mostly budgets aren’t realistic?

Answer 10

Mostly, plans are over-optimistic, have little relationship to the size of the markets or demand levels, and do not reflect industry performance benchmarks. This may not stop them from getting funded and built.

Question 11

What is the meaning of net sales?

Answer 11

Net sales is the sum of a company’s gross sales minus its returns, allowances, and discounts. Net sales calculations are not always transparent externally.

Question 12

What is the operating Cash Flow Ratio? Operating cash flow / current liabilities

Answer 12

The operating cash flow ratio represents a company’s ability to pay its debts with its existing cash flows. It is determined by dividing operating cash flow by current liabilities. A ratio greater than 1.0 indicates that a company is in a strong position to pay its debts without incurring additional liabilities.

Question 13

What is the change in Working Capital?

Answer 13

Change in working capital equals the difference in your net working capital between accounting periods (such as a month or quarter). For example, if your net working capital was $200,000 in June but only $170,000 in July, then you experienced a $30,000 decrease in working capital

Question 14

How to calculate the operating cash flow formula?

Answer 14

As we mentioned before, OCF is revenue minus operating expenses. The simplest formula goes like this:

Operating cash flow = total cash received for sales - cash paid for operating expenses

The OCF formula is also written out in other ways, with different terms:

OCF = (revenue - operating expenses) + depreciation - income taxes - change in working capital

OCF = net income + depreciation - change in working capital

OCF = net income - changes in working capital + non-cash expenses

Question 15

What does decreasing working capital mean?

Answer 15

In most cases, low working capital means that the business is just scraping by and barely has enough capital to cover its short-term expenses.

Question 16

What is cash flow and how is it calculated?

Answer 16

Cash flow is the net cash and cash equivalents transferred in and out of a company.
Operating cash flow is the amount of cash generated by a company’s normal business activities. You can calculate it by subtracting your operating expenses from your total revenue for a set period. Operating cash flow tells you if there’s enough money in your business to keep running.

Question 17

Free Cash Flow

Answer 17

Free cash flow (FCF) is a measure that indicates the amount of cash a company generates after accounting for capital expenditures necessary to maintain or expand its asset base. It is calculated by subtracting capital expenditures from operating cash flow. FCF represents the cash available for distribution to investors, debt repayment, or reinvestment in the business.

Question 18

What does it mean that a business is just scraping by and barely has enough capital to cover its short-term expenses?

Answer 18

In real estate, “scraping by” and “barely” typically refer to a situation where an individual or family is struggling financially to afford their housing expenses. When someone is said to be “scraping by” in real estate, it means that they are just managing to make ends meet or barely able to afford their rent or mortgage payments. This could imply that they are living paycheck to paycheck, have limited disposable income after covering housing costs, or are facing financial strain due to high housing expenses relative to their income.

The terms suggest a precarious financial situation where individuals or families are just able to cover their housing costs but may not have much left over for other expenses or savings. It indicates a scenario where the affordability of housing is a significant challenge for the individuals involved, and they may be at risk of financial instability if their circumstances change