Every business success or failure ultimately depends on one thing.
(Hint: it’s not Sales, Profit, EBITDA, or Valuation Multiples)
It’s Cash Flow.
(Hint: it’s not Sales, Profit, EBITDA, or Valuation Multiples)
It’s Cash Flow.
Included in the famous Cash Flow Statement.
There are three main types of Cash Flows.
These are all highly confused,
Often misunderstood and
Frequently misused.
Here’s what you need to know:
1️⃣ Operating cash flow
There are three main types of Cash Flows.
These are all highly confused,
Often misunderstood and
Frequently misused.
Here’s what you need to know:
1️⃣ Operating cash flow
⚫ Represents the net cash generated by your company's core operations
⚫ Main sources are sales and collections; main uses include payments for supplies, wages, and taxes.
⚫ Calculated by adjusting Net Income for non-cash items & changes in net working capital assets.
⚫ Main sources are sales and collections; main uses include payments for supplies, wages, and taxes.
⚫ Calculated by adjusting Net Income for non-cash items & changes in net working capital assets.
⚫ Used to assess:
>> your company's financial health
>> your company's ability to meet its financial obligations
>> your company's financial health
>> your company's ability to meet its financial obligations
>> your company’s ability to generate sufficient cash to fund ongoing business operations as well as investments in the business and dividend payments to shareholders
>> trends in how the business generates cash
>> trends in how the business generates cash
⚫ Improve it by automating processes, improving inventory management, and speeding up receivables collection.
2️⃣ Investing cash flow
⚫ Represents the net cash generated by your company's investments in long-term assets such as property, plant and equipment (PPE).
2️⃣ Investing cash flow
⚫ Represents the net cash generated by your company's investments in long-term assets such as property, plant and equipment (PPE).
⚫ Involves cash flows from purchasing or selling assets and investments.
⚫ Calculated by totaling the net investments in PPE over the period (purchases less sales of PPE)
⚫ Used to assess:
>> your company's investment decisions
⚫ Calculated by totaling the net investments in PPE over the period (purchases less sales of PPE)
⚫ Used to assess:
>> your company's investment decisions
>> your company's ability to generate returns from its investments
⚫ Improve it by prioritizing investments in high-return projects and consider selling underperforming or non-essential assets
3️⃣ Financing cash flow
⚫ Improve it by prioritizing investments in high-return projects and consider selling underperforming or non-essential assets
3️⃣ Financing cash flow
⚫ Represents the cash generated by your company's net debt and/or equity activity.
⚫ Involves cash flows related to equity and debt transactions, including dividends.
⚫ Calculated by totaling net debt and equity proceeds over the period.
⚫ Used to assess:
⚫ Involves cash flows related to equity and debt transactions, including dividends.
⚫ Calculated by totaling net debt and equity proceeds over the period.
⚫ Used to assess:
>> your company's financing choices and risk profile
>> your company's ability to raise capital
>> your company’s dividend policy
⚫ Improve it by balancing debt and equity financing to reduce costs and improve cash availability for shareholders.
>> your company's ability to raise capital
>> your company’s dividend policy
⚫ Improve it by balancing debt and equity financing to reduce costs and improve cash availability for shareholders.
1. Follow me @IAmOanaLabes for more strategic finance.
2. Sign up for my free newsletter and grab your bonus cheat sheets here: bit.ly
3. RT the first tweet to share the knowledge:
2. Sign up for my free newsletter and grab your bonus cheat sheets here: bit.ly
3. RT the first tweet to share the knowledge:
Join 40,000+ subscribers. Get weekly finance gems to accelerate your career and business growth, and grab my free strategic finance sheets: bit.ly
Loading suggestions...