Cash Flow Statement Model

The following video is borrowed from our BusinessTraining.com platform and was originally recorded for our financial modeling training program.   In the following video, we provide a detailed look at cash flow statements.


Video Transcript/SummaryThe strategies and tips provided within this video module include:

  1. Cash flow statement typically has 3 categories; operating activities, investing activities and financing activities.
  2. The first line item in the cash-flow statement is Net Income, which is the last line item in the Income Statement. In essence, you are trying to determine how much of the net income was a cash expense and how much was a non-cash expense that can be added back. A healthy company will have growing cash flow.
  3. Depreciation and amortisation  are non-cash expenses and are therefore added back to net income. Compensation as  a result of an acquisition, in the form of stock for instance, is similarly not a cash expense and is added back. The difference between the actual and provision for doubtful accounts or inventory is added back or subtracted depending on the outcome. R&D and net gains/losses on investments needs to be considered and added/subtracted. All of the above are related to the Income Statement and expenses.
  4. The following are in reference to the Balance Sheet (B/S). If Accounts Receivable decreased on the B/S, that means more people paid and we therefore add this difference as additional cash-flow. Inventory, pre-paid expenses, lease receivables, accounts payable, income taxes payable, accrued compensation and deferred revenue are further line items in the Cash flow Statement. 
  5. Adding the line items from points 3 and 4 above, provides the company with their Net Cash provided by Operating activities.
  6. Companies also invest their cash proceeds, with some being more aggressive than others. Some of this might be expiring which results in proceeds added back to the cash-flow statement. There are also investments into the business such as on property, plant and equipment or on mergers and acquisitions. When all of these are added, it provides the company with their Net Cash provided by Investing activities.
  7. A company may issue common stock or repurchase common stock, which needs to be accounted for in the cash-flow statement. Any changes in long-term debt or other financing activities also needs to be dealt with. Adding these up provides the company with their Net Cash provided by Financing activities.
  8. Adding all of these changes and then taking account of the beginning cash balance provides the cash and cash equivalents figure.

I hope that this has given you a better understanding of cash flow statements.

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