Cash flow analysis:
We need to analyse and comment on three factors of cash flow i.e., Cash Flow from Operating Activities, Cash Flow from Investing Activities and Cash flow from Financing Activities.
Remember – Cash flow analysis is based on actual inflow and outflow of cash in a financial year. An increase in assets side represents cash outflow and an increase in liabilities side represents cash inflow.
➢ If the net cash from operating activities is positive, it is an indication that the unit is generating enough cash from its operations. If it is negative, the unit is not in a position to get enough cash out of its operations.
➢ If the cash from investment activities is positive, it is an indication that the investments made by the unit are unlocked or the company has sold out certain assets to have inflow of cash. If it is negative, it’s an indication that the investments in the form of fixed assets/ A&S have gone up. Here the user has to analyze source of this investment.
➢ If the cash from financing activities is positive, it is an indication that the unit is depending on outside finance and capital. If it is negative, it’s an indication that the unit has repaid loans/ capital is withdrawn.
Overall, comments on cash flow to be given in all the directions i.e., operating, investing and financing
We need to analyse and comment on three factors of cash flow i.e., Cash Flow from Operating Activities, Cash Flow from Investing Activities and Cash flow from Financing Activities.
Remember – Cash flow analysis is based on actual inflow and outflow of cash in a financial year. An increase in assets side represents cash outflow and an increase in liabilities side represents cash inflow.
➢ If the net cash from operating activities is positive, it is an indication that the unit is generating enough cash from its operations. If it is negative, the unit is not in a position to get enough cash out of its operations.
➢ If the cash from investment activities is positive, it is an indication that the investments made by the unit are unlocked or the company has sold out certain assets to have inflow of cash. If it is negative, it’s an indication that the investments in the form of fixed assets/ A&S have gone up. Here the user has to analyze source of this investment.
➢ If the cash from financing activities is positive, it is an indication that the unit is depending on outside finance and capital. If it is negative, it’s an indication that the unit has repaid loans/ capital is withdrawn.
Overall, comments on cash flow to be given in all the directions i.e., operating, investing and financing
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