Question

In 200 words or more, How does one analyze cash flow from operations?

Answer 1

Analyzing the cash flow from operations is one of the most important components of understanding the Cash flows. Cash flows from operations consists of all the material activities that consists the operational part of the business.

This shows the businesses ability to generate regular cash from its day to day operations and how healthy it is able to hold up in terms of cash flows. This measure is one of purest forms of cash flows.

Operating cash flows generally include:

• Cash Sales;
• Collections from debtors;
• Expense payments;
• Payments to creditors; and all other normal business cash flows.

Therefore, while analyzing cash flow from operations it is pertinent to note that which of the components of cash flow from operations cover a major portion of the cash flows. Also, it is important to note that all the non cash items and payments are removed from the cash flow operations such as depreciation and amortization expense etc.