same manner, changes in accounts receivable and stocks may either be added to the net income or subtracted from it, depending on whether the accounts increased or decreased. An increase in accounts receivable would be deducted from net income because while sales were recorded, cash was not yet received.
The changes in all of the operating accounts between two periods will be computed and listed accordingly on the statement of cash flows to arrive at a net cash flow from operating activities. A steady positive operating cash flow generally indicates that the company is healthy.
Cash flow from investing activities
This section of the cash-flow statement recognises the changes in equipment, assets or investments. Disposal of fixed assets is considered as cash inflow, while purchasing a fixed or short-term assets such as marketable securities is considered cash outflows.
Investing activities indicate the extent to which a company has spent on resources that generate future income and cash flows. Growing companies typically has negative net cash flow from investment activities, which occurs because it buys more assets than it sells. Growth-oriented companies regularly invest in new assets to expand their capacity, replace old equipment and keep up with new technology. A negative cash flow from investing activities generally indicates that the company is growth oriented.
Cash flow from financing activities
This section reflects cash flows from issuing and paying off outside financing, such as equity, debt, and paying dividends.
Issuing stock or increasing long-term borrowing is a cash inflow whereas paying dividends or reducing debt is a cash outflow. Generally, healthy companies report more often negative net cash flow from financing activities. A negative cash flow from financing activities suggests that the business is using its cash flow from operating activities to pay dividends and pay off its outside financing. A positive net cash flow from financing activities indicates the the company raises money from investors and creditors to finance its growth.
A cash-flow statement can be used by different users for a variety of objectives. Prospective investors can use the statement to determine whether the company has adequate cash to expand operations and