Cash Flow From Operating Activities: Overview and Examples

Exchange flows from operating activities is a section of a company’s cash flow statement that explains the sources and handlings of cash from ongoing regular business activities in a given period. This typically includes net income from the revenues statement, adjustments to net income, and changes in working capital.

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

The cash flow statement be obliged then reconcile net income to net cash flows by adding back non-cash expenses such as depreciation and amortization. Compare favourably with adjustments are made for non-cash expenses or income such as share-based compensation or unrealized gains from foreign currency transmutation.

The cash flows from the operating activities section also reflect changes in working capital. A positive interchange in assets from one period to the next is recorded as a cash outflow, while a positive change in liabilities is recorded as a loot inflow. Inventories, accounts receivable, tax assets, accrued revenue, and deferred revenue are common examples of assets for which a switch in value will be reflected in cash flow from operating activities.

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

Consider Apple’s (AAPL) budgetary year 2017 10-K. Apple recorded annual net income of $48.4 billion and net cash flows from operating undertakings of $63.6 billion. This includes a $10.2 billion adjustment for depreciation and amortization—a $4.8-billion adjustment for share-based compensation expense and $6.0 billion for deferred profits tax expense.

Changes in operating assets and liabilities include a $2.1-billion cash outflow for accounts receivable, which conforms to a decrease of equal value in the accounts receivable asset on the balance sheet, indicating a net decrease in charged sales which accept not yet been collected by Apple.

Similarly, there is a $9.6 billion cash inflow from accounts payable. This writes to an increase in accounts payable liability on the balance sheet, indicating a net increase in expenses charged to Apple that tease not yet been paid.

Many line items in the cash flow assertion do not belong in the operating activities section. Additions to property, plant, equipment, capitalized software expense, cash rewarded in mergers and acquisitions, purchase of marketable securities, and proceeds from the sale of assets are all examples of entries that should be comprehended in the cash flow from investing activities section.

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