Question

How do you believe you would determine the cash flow in a financial position? What specific financial documents would you look at? What specific equations would you perform to understand the cash flow position? 

Answer 1

Cash flow can be segregated into three aspects based on the activities of the firm. All these three activities of cash flow can be gauged from the cash flow statement.

a) Cash flow from operations

b) Cash flow from financing

c) Cash flow from investing activities

Cash flow from operating activities

Cash flow from operating activities are represented in the cash flow statement in two methods a) Direct and b) Indirect method.

In the direct method, the cash flows are represented directly from the source or outgo of cash (for example Cash from suppliers). In the indirect method, the cash flows are derived from the net income to adjust for the working capital changes and on cash expenses to arrive at the cash flow from operations.

For example : Net Income + Depreciation/Amortization - Change in Net working capital