What Are Some Examples of Cash Flow From Operating Activities? (2024)

The cash flow statement says a lot about the financial health and well-being of a company. It provides management, analysts, and investors with a window into the movement of cash and cash equivalents in and out of a company. It helps measure how well (or how poorly) a company is able to manage its cash and pay off its financial obligations. While there are three main areas of the cash flow statement, this article focuses on just one: cash flow from operating activities.

Key Takeaways

  • The cash flow statement provides others with insight into a company's financial well-being.
  • The statement shows how well a company is able to manage its cash and pay off its debts.
  • It includes cash flow from investing, cash flow from financing, and cash flow from operations.
  • The cash flow from operations is the first section of the cash flow statement and includes money that goes into and out of a company.
  • Net income, adjustments to net income, and changes to working capital are included in operating cash flows.

What Is Cash Flow From Operating Activities?

A company's cash flow is the amount of money that goes through it. This includes anything that comes into and goes out of the company's coffers. When cash flows are positive, it means that the company's assets are increasing. When its outflows are higher than its inflows, the company's cash flows are negative.

There are three types of cash flows: cash flow from investing, cash flow from financing, and cash flow from operating activities. The cash flow from operating activities section appears at the top of a company's cash flow statement. It is used to explain where a company gets its cash from ongoing regular business activities, such as sales and manufacturing, and how it uses that capital during any given period of time.

The cash flow statement typically includes:

  • Net income, which can be located from the income statement
  • Adjustments to net income
  • Changes in working capital

As such, you can calculate cash flow from operating activities using the following formula:

Net Income + Adjustments to Net Income (non-cash items) + Changes in Working Capital

Net Income

Net income is typically the first line item in the operating activities section of the cash flow statement. This value, which measures a business's profitability, is derived directly from the net income shown in the company's income statement for the corresponding period.

The cash flow statement must then reconcile net income to net cash flows. This is done by adding back non-cash expenses like depreciation and amortization. Similar adjustments are made for non-cash expenses or income such as share-based compensation or unrealized gains from foreign currency translation.

Working Capital

The cash flow from operating activities section also reflects changes in working capital. This figure represents the difference between a company's current assets and its current liabilities.

A positive change in assets from one period to the next is recorded as a cash outflow, while a positive change in liabilities is recorded as a cash inflow. Inventories, accounts receivable (AR), tax assets, accrued revenue, and deferred revenue are common examples of assets for which a change in value is reflected in cash flow from operating activities.

Accounts payable, tax liabilities, and accrued expenses are common examples of liabilities for which a change in value is reflected in cash flow from operations.

Cash flow from operating activities is also called cash flow from operations or operating cash flow.

Example of Cash Flow From Operating Activities

Here's a real-world example to show demonstrate cash flow from operating activities. Consider the fiscal year 2017 10-K from Apple (AAPL).

The company recorded an annual net income of $48.4billion and net cash flows from operating activities of $63.6billion. This includes a:

  • $10.2billion adjustment for depreciation and amortization
  • $4.8 billion adjustment for share-based compensation expense
  • $6billion for deferred income tax expense

Changes in operating assets and liabilities include a $2.1 billion cash outflow for AR, which corresponds to a decreaseof equal value in the accounts receivable asset on the balance sheet, indicating a net decrease in charged sales that were not collected by Apple at the time.

The company also reported a $9.6billion cash inflow from accounts payable. This corresponds to an increase in accounts payable liability on the balance sheet, which indicates a net increase in expenses charged to Apple that were not yet paid.

Cash flow from investing and cash flow from financing activities are not considered part of ongoing regular operating activities.

Cash Flows From Other Activities

Many line items in the cash flow statement do not belong in the operating activities section. For instance, the following are examples of entries that should be included in the cash flow from investing activities section:

  • Additions to plant, property, and equipment (PP&E)
  • Capitalized software expense
  • Cash paid in mergers and acquisitions (M&A)
  • Purchase of marketable securities
  • Proceeds from the sale of assets

Similarly, proceeds from the issuance of stock, proceeds from the issuance of debt, dividends paid, cash paid to repurchase common stock, and cash paid to retire debt are all entries that should be included in the cash flow from financing activities section.

What Are Typical Cash Flow From Operating Activities?

Cash flow from operations indicates where a company gets its cash from regular activities and how it uses that money during a particular period of time. Typical cash flow from operating activities include cash generated from customer sales, money paid to a company's suppliers, interest paid to lenders,

How Do You Find Cash Flow From Operating Activities?

You can find the cash flow from operating activities on a company's cash flow statement. This section normally appears at the top of the statement. You can also calculate operating cash flow by adding together a company's net income, non-cash items (adjustments to net income), and working capital.

What Does a Company’s Net Cash Flow From Operating Activities Include?

A company's net cash flow from operating activities indicates if any additional cash came into or went out of the business. This includes any changes to net income (sales less any expenses, such as cost of goods sold, depreciation, taxes, among others) as well as any adjustments made to non-cash items.

What Are Some Examples of Cash Flow From Operating Activities? (2024)

FAQs

What Are Some Examples of Cash Flow From Operating Activities? ›

Operating cash flow (OCF) is how much cash a company generated (or consumed) from its operating activities during a period. The OCF calculation will always include the following three components: 1) net income, 2) plus non-cash expenses, and 3) minus the net increase in net working capital.

What is operating cash flow with example? ›

Operating cash flow (OCF) is how much cash a company generated (or consumed) from its operating activities during a period. The OCF calculation will always include the following three components: 1) net income, 2) plus non-cash expenses, and 3) minus the net increase in net working capital.

What is an example of an operating activity? ›

Some common operating activities include cash receipts from goods sold, payments to employees, taxes, and payments to suppliers. These activities can be found on a company's financial statements and in particular the income statement and cash flow statement.

Which of the following is a cash flow from operating activities? ›

Answer and Explanation: The cash flows from operating activities are the cash flows that are related to the business operations of a firm such as cash received from customers, cash paid for advertising, and cash paid to suppliers.

How to find cash flow from operating activities? ›

The cash flow from operations can be calculated in this way:
  1. Cash flow from operations = Funds from operations + changes in working capital.
  2. Funds in operations = Net income + depreciation + amortisation + deferred taxes + investment tax credit + other funds.
Sep 11, 2022

What is cash flow and example? ›

What is Cash Flow? Cash flow refers to the net balance of cash moving into and out of a business at a specific point in time. Cash is constantly moving into and out of a business. For example, when a retailer purchases inventory, money flows out of the business toward its suppliers.

Which is an example of a cash flow from an investing activity? ›

Cash inflows (proceeds) from investing activities include:

Cash receipts from collections of loans (except for program loans) and sales of other agencies' debt instruments. Cash receipts from sales of equity instruments and returns from investments in those instruments.

What is an activity that falls under operating activity in the cash flow statement? ›

Operating activities. include cash activities related to net income. For example, cash generated from the sale of goods (revenue) and cash paid for merchandise (expense) are operating activities because revenues and expenses are included in net income.

Why are operating activities important in cash flow statement? ›

The cash flow from operating activities formula shows you the success (or not) of your core business activities. If your business has a positive cash flow from operating activities, you may be able to fund growth projects, launch new products, pay dividends, reduce the company's debt, and so on.

What is an example of a negative cash flow from operating activities? ›

Negative cash flow is when your business has more outgoing than incoming money. You cannot cover your expenses from sales alone. Instead, you need money from investments and financing to make up the difference. For example, if you had $5,000 in revenue and $10,000 in expenses in April, you had negative cash flow.

What are the two methods used in cash flow preparation for operating activities? ›

Direct method – Operating cash flows are presented as a list of ingoing and outgoing cash flows. Essentially, the direct method subtracts the money you spend from the money you receive. Indirect method – The indirect method presents operating cash flows as a reconciliation from profit to cash flow.

What is the cash flow from operating activities for banks? ›

The cash flow from operating activities of the banks includes the receipts, payments and affecting current assets and current liabilities.

What is an example of funds from operations? ›

For example, for a company selling jewellery, income from investments or a one-time sale of a fixed asset could be considered non-operating income. Removing such non-operational transactions gives you the funds from operations.

What are operating activities? ›

Operating activities are all the things a company does to bring its products and services to market on an ongoing basis. Non-operating activities are one-time events that may affect revenues, expenses or cash flow but fall outside of the company's routine, core business.

What is an example of a cash flow of a project? ›

Terminal cash flows are the cash flows incurred at the end of the project. For example, at the end of the new equipment's useful life, Mr. Tater could sell the equipment for $10,000. Since this is money coming into the Crunchy Spud Potato Chip Company, it represents a cash inflow.

Which of the following is an example of an operating cash flow? ›

Examples of items included in the presentation of the direct method of operating cash flow include: Salaries paid out to employees. Cash paid to vendors and suppliers. Cash collected from customers.

What is the difference between FCF and OCF? ›

Key Takeaways. Operating cash flow measures cash generated by a company's business operations. Free cash flow is the cash that a company generates from its business operations after subtracting capital expenditures.

What is an example of an operating inflow? ›

Cash inflows (proceeds) from operating activities include:

Cash receipts from sales of goods and services. Cash receipts for activities considered operating activities of the grantor government, unless specifically classified as another category. Cash receipts for reimbursements of operating activities.

What is the difference between operating and cash flow? ›

Operating profit includes depreciation and amortization, but excludes interest and taxes. Cash flow from operations does the opposite: it excludes depreciation and amortization because they are non-cash expenses, and it includes interest and taxes because they are cash expenses.

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