Explain whether the expected net cash flows from the three activities (operating, investing, financing) would be...

Explain whether the expected net cash flows from the three activities (operating, investing, financing) would be in flows or outflows.

Solutions

Expert Solution

The expected net cash flows from the three activities, i.e, operating, investing and financing, can be both inflows depending on situations.

Let us first look at the operating activities.

The expected net cash flows from the operating activities is reported as cash inflow when there is a positive change in the liabilities like accounts payable. When for day to day operations, money is being injected, it accounts for cash inflow resulting in positive change in the liabilities.

On the other hand, if in operating activities there is a positive change in the assets, it reflects the cash outflow as occupying an asset leads to money going out of the company.

Now let us discuss the investing activities.

The expected net cash flow from investing activities can be both inflow or outflow of cash coming from the investments made by the company.

Whatever cash coming in the system like from proceedings made from sale of marketable securities or any other equipment is regarded as cash inflow from investing activities.

On the other hand, the cash that is going out of the system like in case of purchasing or acquisitions of assets regarded as outflow of cash in investing activities.

Now let us discuss the financing activities.

The net cash flows from financing activities is the net amount of funds a firm is generating.

If the net cash flow is positive which remarks the profit of the firm, this means that there is a inflow of cash in the firm.

Whereas if there is a negative net cash flow in a firm, means the company has gone through losses. This represents the the outflow of the cash from the system.

Thus, here we saw the declaration of inflow or outflow of cash in three activities for their net cash flow.

ekkarill92 answered 1 year ago

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