1/8/2024 0 Comments Operating free cashflowTo generate these revenues, companies have to undertake operations such as purchasing raw materials, manufacturing inventory, paying employees, etc. For example, Apple Inc.’s revenue comes from sales of its electronics. This is basically the revenue generation from the main activity of the business. Cash inflows result from cash sales and collection of accounts receivable. Operating activities include a company’s day-to-day activities, for example, purchasing raw materials or making sales. The cash flow generated from operating activities is termed operating cash flow. Now that we understand the importance of cash flows, let’s see the types of cash flows that are in use: Operating Cash Flow To survive, companies need cash, even better when companies are cash rich, and the indicator of cash is a cash flow statement. However, when we look at its cash flow, we will realize that the cash flow is negative, and negative cash flow is not sustainable. The company’s income statement will show how good the revenue and earnings are. ![]() Let’s take a hypothetical example of a company making extremely good sales at a very good margin, never collecting any payment for its sales. So one may ask – how is this useful for me? As an investor, a cash flow statement is an extremely important tool to diagnose the financial health of a company. A formula for Free Cash Flow to the Firm.
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