Statement of Cash Flows: Net Cash from Operations, Investments and Financing



Brought to you by StratPad: Simple Business Plan App. Try it free at http://www.stratpad.com In this video, we dig into the statement of cash flows and how it measures the ebbs and flows of cash in your company. We'll use an example to help you understand how to arrive at net cash by calculating three components on the statement of cash flows: cash from operations, cash from investing and cash from financing. http://www.stratpad.com/financial-statements-made-easy-video-course/statement-of-cash-flows-net-cash-from-operations-investments-and-financing/ Video Transcript Let's take a couple of minutes to look at the statement of cash flows in greater detail. Then I'll get into an example that brings all this together. The statement of cash flows is broken into three sections: 1. Cash from operations, which you already have seen — it starts off with the cash from net income and then makes adjustments, up or down, related to whether or not customers are paying us this month or they're paying us later. And then adjustments up or down depending on accounts payable, whether we are paying our suppliers this month or whether we are delaying payments to suppliers. 2. Cash from investing. This is investments that the company makes. This is not investments that others make in the company. The company can make investments by buying a building or by buying equipment and those things are then used for the company to generate additional cash. 3. Cash from financing is where we get bank loans and also where outside investors will purchase stock in the company. Here's a quick example with numbers so you can see how this adds and flows. Net income is $5,000 of profit this month; Accounts receivable went up ($4,000), which adversely affects our cash; and Accounts payable also went up ($2,000) and when accounts payable goes up, that improves our cash position. We subtotal this ($5,000 minus $4,000 plus $2,000) is $3,000. We spent $15,000 on a piece of equipment, so that's cash going out. Total cash from investing is minus $15,000. We took a bank loan of $10,000, so that's cash in. We also had a founder put in an additional $25,000 worth of cash. Therefore, cash from financing is $35,000. Then we total each of these three sections ($3,000 minus $15,000 plus $35,000) is $23,000. Cash at the beginning of the period was zero. Therefore, cash at the end is $23,000, with a double-underline to show that we're at the end. I hope you can see that the statement of cash flows tells a pretty clear story of the comings and goings of the cash in the period. It does take a bit of practice though, particularly things like accounts receivable, which seem to be a little counter-intuitive. As you're going through it, just make sure that you're asking yourself the question: is more cash coming in or is more cash coming out? If cash is coming in, then it's a positive value like here ($5,000). If cash is coming out, like when we spend money on equipment, then it's a negative value (minus $15,000). If you stick by that rule of thumb, that will help you get through this. Then, of course, you should just be practicing looking at your statement of cash flows every single month. You're just about to graduate! Just one more video where we bring this all together and then you're done. Way to go.

Comments

  1. thanks for making this video! you made what seemed incredibly difficult, rather easy to perform (which is the sign of a good teacher)
  2. OH GOSH this is exactly what I needed. Thank you so much :)
  3. Helped me lots. Thank you
  4. thank you so much...:-)
  5. It was a headache to me all the time.. You made it easy...Thank You
  6. Thanks, this is so easy to understand!
  7. oh it did of course. the video very clear and well explained. Thank very much Alex :)
  8. Hi, if we have account receivable means we have more cash coming in but how come you said it affects cash inversely ?
  9. oops it's my mistake I guess
  10. hey as u wrote on top 3000. so 3000-15000 should be -12000 sir
  11. You made it extremely easy to understand understand. ..great. thanks
  12. Thank you!
  13. Wow you explain better than my professor. Here I was struggling with investing and financing you made it look so easy
  14. boss i have a quick question, how do did you come about the net income of 5,000 when you have not started any business at all. imagine you now preparing a business plan for an investor or a bank to finance your project
  15. hello Alex i am really grateful for this vid, you are really doing a great job


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Duration: 3m 51s

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