Cash Flow:
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| Cash Flow |
The Cash Flow Statement
To extol how cash has been maintained during an accounting period. It can give a business make a strategy if on to the market. Suppose, if your cash flow is running negative a company can look to cut expenses, increase sales, or maybe negotiable margins on contracts or with vendors.
If a company has more money they can look to focus on what navigations of their business they wish to improve, all this project will be done by purchasing assets, hiring new employees, approving overtime R&D. It just depends on what the user of the settlement is looming to do in either situation.
Types Of Cash Flows
Here we have to discuss about three types of cash flows
• Cash from operating activities
• Cash from investments
• Cash from financing
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Investing On Positive Cash Flow
It extols the company is selling off its properties, plant, and equipment or selling its investments in other companies. By the negative operating cash flow means the company is selling its assets to finance its operations.
Investing On Negative Cash Flow
It exists the company is buying properties, plants, and equipment or making new investments in other companies. By the positive operating cash flow means the company is using its excess money to invest in its future.
Financing From Positive Cash Flow
This refers to the company takes more money for the long term, its obligation to repay principal, and interest also increases. In this way operating cash flow is hurt even more.
Financing From Negative Cash Flow
Which extols that the company is either paying back principal on long-term debt, purchasing treasury stock, or paying dividends.
CFO to Capex
The meaning of Capex word is capital expenditure. Normally this ratio is prohibited by CFO by the Capex of a firm. The firm is best for this metric as it has Rs 2.5 for every Rs 1 in Capex.
CFO to current liabilities
Generally, it is corrected by dividing CFO by the current liabilities of a firm. The firm is highly good at honoring the payment of current liabilities.
CFO to total debt
It is multiplied by dividing CFO by the total debt. In every metric, the ratio should at least one for a healthy firm.
CFO to Net Income
Normally it is prohibited by dividing CFO by net income of a firm. The firm is good at maintaining its cash flows.
Pro Points For Operating Cash Flow
1. Free Cash Flow (FCF) is equal to the CFO and Capital Expenditure
2. CFO is equal to the net income with adding of non-cash expenses and increase in non-cash networking capital.
These two major points are used for the calculation of cash flow.
Free Cash Flow (FCF) is used when you are looking for cash available to shareholders
CFO is to analyze free cash flow, it is different from free cash flow.
And also CFO is the first section of the cash flow statement.
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