In: Accounting
For a company in the aerospace industry, go to the financial statement and study the statement of cash flows. How does the cash from operating activities differ from the income from operations on the income statement? What are the major sources for this difference? Which would you find more valuable in deciding whether to invest in the company or not and why? Include a link to this financial statement in your post.
Let's take an example of boeing :
1.
A. Income statement will reflect the amount of profit that you would derive from your core operations by selling your products and managing the cost whatsoever left would give you a fair idea about your profit generated from the business.
B.cash from operating activities however will give you an estimated picture regarding the amount of cash that has been left over with you after all the deductions and management of working capital. One can also say that it is a close proxy to the cash generated from the operations of business.
Cash from operations would eliminate the major factor such as financing cost and capital expenditure cost. so one can be easily able to compare companies to anyother companies in the market be it from other industries to invest or not to invest.
2. Sources of difference:
Income statement include: Sales, COGS, Variable cost, Fixed cost some recurring cost and non recurring cost and etc.
Cash from operating activities include, Depriciation, Interest, Changes in Working capital.
3. I would not suggest to liase on any one specific parameters to invest in any company. Since you are about to invest money from your savings so you need to take into consideration all the factors that would insist you to invest into the companies. You should either dig into more details and perform some relative valuations where you can compare other companies prevailing in the same industries and come up to a concrete decision to invest or you could also perform an fundamental valuations where you shall calculate intrinsic value of the company which would totally depend on the cashflows of the companies and is a very strong metric to make comparison between companies befor investing in any stock.