A cash flow statement reports the cash used or generated in the period (month, quarter, year) under three sections: operating activities, investing activities and financing activities. The cash from operating activities is the net income plus changes in current assets and liabilities, adjustments for depreciation and amortisation expenses and fixed asset dispositions. Financing activities include changes in long-term liabilities and shareholders' equity. The investing activities section reports on changes in investments and fixed assets.
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Calculate capital expenditures. These are expenses for additions to property, plant and equipment for the period. For example, if you paid £65,000 for new machinery and bought 10 new computers for £32,500, total capital expenditures were £97,500 (100,000 plus 50,000).
Calculate the proceeds from sales of long-term assets in the period. For example, if you sold an old building for £91,000 and had a garage sale of used computer systems for £13,000, then net proceeds from sales were £104,000 (140,000 plus 20,000).
Calculate net long-term investments. These include purchases or sales of securities, acquisitions or sales of other companies, investments or sales of subsidiaries, loans to other companies and cash income received from investments. Assume that net long-term investments were zero for our example.
Calculate the cash flow from investing activities. Note that cash coming into the company from sales is a positive cash flow (cash inflow) and cash leaving the company due to purchases is a negative cash flow (cash outflow). To conclude the example, cash flow from investing activities equals £6,500 (160,000 minus 150,000).
Tips and warnings
- Companies use discretion in the level of detail they provide in financial statements. They may highlight the bigger dollar-value items and discuss them in more detail in the accompanying regulatory filings. It may not be feasible to list all transactions, because there may be hundreds of them.
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