A simple explanation of Cash Flows of a company (Essential for investors) A thread 🧵
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Understanding cash flow terms helps investors see how well a business generates cash and manages its finances.
A simple explanation of the following
1- Operating Cash Flow
2- Investing Cash Flow
3- Financing Cash Flow
4- Net Cash Flow
5- Free Cash Flow
Even Kids Can Master these! Using this thread

Meet Ayaan, the Burger Seller! He launched his business with 10L of his own money. This 10L is his equity.
To expand, he borrowed 5L for a new burger-making machine and shop.
So, 15L is the total capital of his business.
2/8 #cashflow #Make #Investing #Simple

Operating Cash Flow (OCF): This is the cash generated from Ayaan's core business operations. It tells us if his burger business can generate enough cash to maintain and grow its operations.
Let's say Ayaan's burger shop had the following cash transactions in 2024:
Cash received from customers: 8L
Cash paid for ingredients, wages, and ads: 5.5L
Operating Cash Flow = Cash Inflows from Operating Activities - Cash Outflows from Operating Activities
OCF = 8L - 5.5L = 2.5L
Ayaan's burger business generated 2.5L in cash from its core operations in 2024.
3/8 #cashflow #Make #Investing #Simple

Investing Cash Flow (ICF): This is the cash used for investing in the business. It includes buying new equipment, and buildings, or selling old assets.
In 2024, Ayaan bought a new burger-making machine for 2L.
Investing Cash Flow = Cash Inflows from Investing Activities - Cash Outflows from Investing Activities
ICF = 0 - 2L = -2L
Ayaan's business used 2L for investments in 2024.
4/8 #cashflow #Make #Investing #Simple

Financing Cash Flow (FCF): This is the cash flow between Ayaan's business and its owners or creditors. It includes loans taken or repaid, and money received from or paid to shareholders.
Let's say Ayaan: Borrowed 5L from the bank& Paid back 1L of his loan
Financing Cash Flow = Cash Inflows from Financing Activities - Cash Outflows from Financing Activities
FCF = 5L - 1L = 4L
Ayaan's business gained 4L from financing activities in 2024.
5/8 #cashflow #Make #Investing #Simple

Net Cash Flow:
Net Cash Flow = OCF + ICF + FCF
OCF - Operating Cash Flow
ICF - Investing Cash Flow
FCF - Financing Cash Flow
Net Cash Flow = 2.5L - 2L + 4L = 4.5L
Ayaan's burger business ended 2024 with a net cash flow of 4.5L.
This means the business increased its cash by 4.5L over the year.
6/8 #cashflow #Make #Investing #Simple

Free Cash Flow (FCF):
Free Cash Flow shows how much cash Ayaan's business has left after maintaining or expanding its asset base.
Free Cash Flow = Operating Cash Flow - Capital Expenditures Capital Expenditures (CapEx) are the funds used to buy, maintain, or upgrade physical assets like property or equipment.
In 2024, Ayaan’s CapEx was the 2L he spent on the new burger-making machine.
Free Cash Flow = 2.5L - 2L = 0.5L
Ayaan's burger business has 0.5L left after accounting for capital expenditures.
This is the cash that can be used for other purposes like paying dividends, reducing debt, or saving for future investments.
7/8 #cashflow #Make #Investing #Simple

Summary of Ayaan's Burger Company Cash Flows
Operating Cash Flow (OCF): 2.5L
Investing Cash Flow (ICF): -2L
Financing Cash Flow (FCF): 4L
Net Cash Flow: 4.5L
Free Cash Flow (FCF): 0.5L
Understanding these cash flow terms helps investors see how well a business generates cash and manages its finances.
Good businesses usually have strong operating and free cash flows, indicating they can sustain and grow their operations without relying too much on external financing.
8/8 #cashflow #Make #Investing #Simple

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