The cash flow statement always shows the flows of the cash in a particular entity. In a fixed accounting period the summary of receipts and payments is cash flow. Similarly, we have to know the information about the cash. In a simple language where the cash is going and where it is coming and where it is generating. As well as we say inflows are receipts and outflows are payments. When we do our analysis in the cash flow statement we categorized flows into three parts.
Operating activities
Operating activities are generally day-to-day activities. These are principal revenue-producing activities. In more simple language daily operations which an entity does. Selling products, giving services, fees, etc. Similarly, payments which we give to suppliers of the raw materials, employees, etc.
This is actually done by two methods. One is the direct method and another one is the indirect method.
In the direct method, we calculate from the disclosed part. All the receipts and payments are there with income tax and other taxes are there.
In the indirect method, the Profit and loss statement is adjusted. Current assets, liabilities, their selling and cash generation, before tax payment and after payment, and depreciation are there to calculate from the retained earnings.
Investing activities
We invest and divest in our business to gain cash and money. Investments are various types are there. These investments are strongly related to acquiring and disposal of long-term assets and others. It is not included in the cash equivalent.
Cash payments for purchasing fixed assets or selling fixed assets, dividends, interests, shares, debts, etc.
from this side, we see the debt clearance, old fixed asset selling money, as well as, new fixed assets which will give us an opportunity to earn money.
Financing activities
Little bit complicated thing in cash flow statement analysis. It is related to the equity and borrowings of the entity. Furthermore, issuing the shares, debentures, bonds, etc. The things which are there but not hard things in hand. This kind of thing money calculates here. Similarly, another important part is foreign currency transactions. When we earn money from foreign in their currency at that time some exchange rates have to calculate.
From this statement, we measure the flow of the cash and navigate all the parts. similarly, we predict in the next accounting period what would be the condition of the cash in different activities.
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