How can I figured out the cash flow by looking @ Financial Statements?

Answer 1

The financial statements usually contain three "statements". They contain the Income Statement, Balance Sheet and Cash Flow Statement. The income statement contains the revenues and expenses to determine the period's net profit. The balance sheet is a period ending's assets, liabilities and equity. The cash flow statement is a reconciliation of the income statement to the cash balance by backing out changes in the balance sheet and differences in cash/non-cash items.

The cash flow statement is made up of three parts: Cash flows from operating activities (CFO), cash flows from/for investing activities (CFI) and cash flows from/for financing activities (CFF).

The CFO usually is stated using the "indirect method" (except Australia, where I've seen them use the direct method predominantly). Indirect method starts with pre-tax profits, backs out non-cash items (e.g. depreciation), changes in working capital and takes out taxes to get to CFO. This section is basically the cash from the "core business" of the company.

CFI is usually dominated by capital expenditures (e.g. spending on new equipment), acquisitions and cash flows in and out of equities, stocks, derivatives and other investments not deemed to be core to the business (i.e. either as capital management or outside the scope of the company's business).

CFF is usually dominated by debt proceeds/payments, dividends and new funds from equity raising (e.g. stock options, secondary placements, IPO).

This nets down to the change in cash. You can see where cash is coming and going (e.g. is the core business losing lots of money, but they are staying afloat by raising debt? is the company doing really well, but the company is blowing the cash is stupid investments year after year?).

The last thing is to look at the footnotes, which give you even more details on where cash came from and went.

I can go on and on... but that, my friend, is how you figure out the cash flow from looking at the financial statements.

Answer 2

Please disregard Box18's answer--sorry it's just wrong. EBITDA is not equivalent to cash flow because it ignores taxes and changes to investments.

To do a cash flow you need both the Income Statement and the Balance Sheet.

Start with Net Income. Add Depreciation and Amortization from the income statement.

Now look at the Balance Sheet for the current period end and the period end of the prior period. If Accounts receivable and other short term asset accounts (except cash and cash equivalents) increased, then subtract the amount. If they are smaller, add the amount. Subtract the amount of Capital Expenditures.

Now look at the liabilities. If the short-term liabilities increased, add the amount to cash flow. If they decreased, subtract the amount. Do the same for all the other liabilities.

To prove you number, your calculated cash flow should equal the amount by which the balance in cash and cash equivalents changed from the end of the prior period to the end of the current period.

There are really too many considerations for me to include in this answer. I suggest you look up a public company's SEC filings and look at there Statement of Cash Flow to give you an idea.

Answer 3

Cash flow is sometimes refer to by the acronym EBITDA which stands for Earnings Before Interest Taxes Depreciation and Amortization. The calculation would be Earnings plus each of those line items from the Income Statement. Not all earnings will have Amortization or it may be lumped into Depreciation. If the net effect of interest is a plus, that is if the company collects more interest than it pays and it ISN'T a primary function of it's business then deduct the interest income from Earnings.