Cash Flow from Operations

Net Income
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Operating Activities, Cash Flows Provided By or Used In:

Depreciation
Adjustment to Net Income
Changes in Accounts Receivable
Changes in Liabilities
Changes in Inventories
Changes in Other Operation Activities
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Total Cash Flow from Operating Activities



Cash flow from operations, CFO, tells what cash is generated from, or provided by, normal business operations, and what cash is consumed, or used in the business.

Net income from continuing operations is the starting point, to which cash adjustments are made.

To that figure, add (or subtract) what was called the "adjustments to reconcile net income to net cash provided by operating activities."

The first adjustment item is depreciation.

• For example, depreciation in Company X was $24 million. So, we known that without other adjustments, $24 millionn more in cash was generated than reported as net income, because depreciation was subtracted from net income, but not from cash flow because it isn't a cash expense.

Then a catch-all "Adjustments to Net Income" category.

After this, comes:

• "Changes In Accounts Receivables"
• "Changes in Liabilities"
• "Changes in Inventories"

Finally, you arrive at a total "Total Cash Flow from Operating Activities," derived by netting the adjustments to toal income.

• This is a very important figure. Essentially, this is cash generated by ongoing day-t0-day business activities.
• If this amount is negative, that's bad, because it means that the business isn't even supporting itself on a day-to-day basis and requires an infusion of cash.
• If it's positive - we're still not out of the woods yet - capital investments may still require more cash than the business is producing.