By Cash Flow Statemement – Cash flow statement indicates the cash flow of the companies during a specified period. There are three major headings for the cash flow statement. Cash Flow from Operations, Cash Flow from Investments and Cash Flow from Financial.
Cash Flow from Operations – This is the most important cash flow in business terms. Actual money received from sales, customer, services is recorded as positive cash flow. All payments done to Staff, Raw Material, other expenses is termed as negative cash flow (Outflow). Cash Flow from operations is difference between the Inflow and Outflow.
Cash Flow from Investment – Cash deployed by the company in the productive capacity is called as cash flow from investment. Generally company will do capital investment in factory, land etc and will be a cash outflow. At times company may sell the old factory or land and realize one time cash inflow.
Cash Flow from Financing – The cash flow accomplished by the company by means of raising the debt or equity is cash inflow. Also when company need to repay the loan, bond etc, it is termed as cash outflow. A companies capability to raise the cash is one of the inherent characterstics of long term growth sign.
Free Cash Flow = Cash Flow from Operations – Cash Flow from Investments
Free cash flow is most important characterstics and a continuous growth in FCF is strong representation of a company.
