Cash Flow Activities

Cash flow activities can be categorized into three basic sections which include cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. These three kinds of cash flow statement activities are correlated to each other. They usually depend on and affect each other. The cash flow forecast should take this into account, and offer a complete picture of where cash will come from and how it will be used for the period being forecast.  The relationships between the different cash flow activities may depend on the nature of the business, the stage of development of the business, and general economic conditions, or conditions within the market or industry in which the business operates.

Let’s discuss in details about the different cash flow activities:

Operating activities - These cash flow activities includes the production, sales and delivery of a company’s product. In simple words, these are the activities that include your company’s profit or loss and non-cash items that affect your profit without affecting cash. For instance the kinds of non-cash expenses that are included in these activities are reduction and bad-debt expense. Changing of your operating assets & liabilities are also a part of this section, and this may include accounts receivable, prepaid expenses, and accounts payable.

Investing activities – These are another kind of activities in cash flow which mainly consists of the buy and sale of long-term assets including items such as capital expenditures and investments. An interesting aspect of these types of cash flow activities assets is that these assets do not affect the company’s profit. To be very precise, these assets do not represent revenue or expense items.

Financing activities – These are the cash flow activities that denote the equity and debt of the firm. In simple words, it is the money owned by outside entities which include banks & shareholders. Moreover, it also includes payments to these owners of the company. If you increase or decrease your debt, that change is included in financing activities. Equity changes such a capital contributions or shareholder distributions also are reflected and included under financing activities. Like investing activities assets, financing activities liabilities and equity do not represent revenue or expense items.