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Sure travisbkein

Let's go down the cash flow progression as this may better explain the measures of a company's cash flows

Revenue or Sales: This is the amount of cash the company has received from their core operations.

Operational Expenses: This is the cost of doing business most of which recur quarter to quarter. They include the cost of labor (and all benefits), rents, maintenance, cost of raw materials, energy/utilities, all taxes, interest on debt, licensing fees, R&D costs, etc. It DOES NOT include the cost of investments or financing (except the interest expense)

Changes in working capital accounts. These are short term (current) assets and liabilities that hold company cash or claims on cash, but cash that management cannot access. It is the change in the cash value of these accounts that determines how much cash then became available (positive) or unavailable (negative) for the reporting period. The big three here are Inventories, Accounts Receivable and Accounts payable.

Cash Flow From Operations, or CFFO, is the Revenues minus operational expenses, +/- changes in working capital accounts. It is the amount of cash management has available to them for the reporting period (quarterly or annually) from the operations of the company. The trend in this number is, for most companies, the important value to follow. This cash is then used by management in the following proprieties

Investments. This includes the acquisition of all capital assets that are purchased to create or facilitate the generation of revenues. Examples are equipment, buildings, machinery, patents, mailing lists, securities of other companies, mineral rights or acquisition of other companies. This also includes the sale of existing capital assets. The net of capital acquisitions and sales gives the Cash Flow From Investments, or CFFI, usually a negative number meaning cash has been spent. A positive number here means cash has been generated from the net sale of investments.

Financing. This is cash raised, or used, from the sale/buy back of bonds, sale/buy back of stock (common or preferred stock), cash from/paid back to minority (non-controlling) interests, sale-leaseback cash and the associated costs of the financing activities, to include all distributions to shareholders (dividends) and payments to non-controlling interests (if any). The net result is Cash Flow from Financing Activities, or CFFA. A negative value means net cash was paid out while a positive value means net cash was brought into the company for the reporting period.

Like your checkbook, the corporate check book (the statement of cash flows) must balance.

Beginning period Cash and Cash Equivalents
Plus CFFO (a positive number)
Plus CFFI (usually a negative number)
Plus CFFA (a positive or negative value)
Plus/minus changes due to foreign currency exchange rate (for companies doing business overseas)
Equals End of Period Cash and Cash Equivalents

The Statement of Cash Flows is a powerful document because it is very hard to manipulate cash, the values shown are relatively easy to audit, the corporate checkbook must balance and it is not possible to create cash where there isn't any without overt fraud (think Enron)

Hope that helps

BruceM
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