Join Jim Stice for an in-depth discussion in this video Company B: Strange, part of Running a Profitable Business: Understanding Cash Flow.
- Okay, we're looking at cash flow data…for four companies,…and using those cash flow data…determining to which one of the companies…we should give a loan.…We looked at company A and decided,…um, probably not.…Company A has negative operating cash flow,…and hugely negative free cash flow.…Now, let's look at the cash flow statement for company B.…What's the most important number…in the statement of cash flow?…Answer: Operating cash flow.…And for company B,…we see that operating cash flow is positive.…Positive $50,000, so far so good.…
And what's the most important relation…in the statement of cash flows?…Answer: The relation between…the magnitude of operating cash flow…and the magnitude of investing cash flow.…We put those two numbers together…and we call it free cash flow.…The free cash flow for company B…is $185,000, positive $185,000.…That's $50,000 operating cash flow,…and $135,000 investing cash flow.…Well, so far, company B looks good…with a sizable, positive free cash flow.…But there's something strange about this company.…
Want to hear more from Jim and Kay? Learn about all three types of accounting—financial, managerial, and income tax—in their Accounting Fundamentals course.
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- Differentiating between net income and operating cash flow
- Categorizing cash flow
- Using financial data to deduce cash flow
- Managing operating, investing, and financing cash flows
- Typical cash flow patterns
- Converting net income into operating cash flow
- Improving operating cash flow
Skill Level Intermediate
1. The Importance of Cash Flow Analysis
2. Overview of the Statement of Cash Flows
3. Using Cash Flow Data to Make a Loan Decision
4. Converting Income Statement Data into Operating Cash Flow Data
5. Managing Cash Flow
6. Cash Flow Numbers for Some Real Companies
The danger of free cash flow3m 56s
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