Three Activities in Cash Flow Statement

   
    Cash Flow Statement is a formal financial statement that shows the performance of a company. It tells investors and creditors whether the company is worth to invest. A cash flow statement can be divided into three parts, which are operating activities, investing activities and financing statement. These three parts provide different kinds of cash information and also reflect the performance of business from various aspects. 

1.Operating Activities

    Operating Activities are transactions related to providing services and selling products. This the most frequent activity in a business. This part turns the accrual net income on income statement into a cash basis. 
    The cash from operating activities is always be compared with the profit. If the cash is greater than profit, the profitability of this company is in a good condition. On the other hand, if the cash from operating activities is less than the profit, it means the company is not able to turn their net income into cash[1]. One possible reason is that the accounts receivable of this company are hard to change into cash. 

2.Investing Activities

   
Investing activities includes purchasing and selling buildings, equipment or land. In other words, it shows the change of long-term assets in the balance sheet. In most of the time, the company may have negative cash from investing activities because of purchasing new equipment or doing other investment. 
    It is also not uncommon to see a positive cash from investing activities. This happens when a company disposing of old long-term assets. However, if the positive cash is too large, it is a danger sign for the business because the company is probably selling their assets to pay liabilities. 

3.Financing Activities

   
    Financing Activities are relevant to retained earnings and long-term liabilities on the balance sheet. Financing activities that bring money to the company include receiving cash from issuing shares or debts. Financing activities that generate negative cash include giving dividends to shareholders and paying interest on bonds payable.
    Generally, the cash from financing activities provides information about how the company borrow and repay money as well as how they manage their retained earnings. Moreover, it reflects whether the company have a good relationship with creditors and investors[2].
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1. Retrieved from: https://www.accountingcoach.com/cash-flow-statement/explanation
2. Retrieved from: http://www.investopedia.com/articles/investing/120613/cash-flow-statement-analyzing-cash-flow-financing-activities.asp 

Comments

  1. UnknownMay 26, 2017 at 6:35 AM

    I like your blog,your introduce three activities in cash flow statement,it is very important for me, because I've just learned this in Grade 12 Accounting .It has very great help for me.

    ReplyDelete
  2. ChristalMay 26, 2017 at 6:42 AM

    The blog introduces three parts of cash flow statement, and it connects with our class.

    ReplyDelete
  3. UnknownMay 26, 2017 at 6:44 AM

    You are holding utterly different point of view of how to boost a business's cash flow. Especially, financing activities can be able to improve the cash flow that i have never thought before. Carry on.

    ReplyDelete
  4. UnknownMay 26, 2017 at 6:48 AM

    Your blog introduces three activities in cash flow statement. Cash flow statement is a formal statement, and as company, it's very important. I can know the relationship of these three activities with company.

    ReplyDelete

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