MBATricks

Tips and Tricks about my MBA experience

Finance :: Cash Flow & Cash Flow Statement

The Cash Flow is the amount of money received and paid by a company during a defined period of time.

 

To calculate it we need to use the Earning After Taxes (EAT) that is the result of the Income Statement.

 

Earning After Taxes (EAT)

+ Depreciation (D)

+  Amortization (A)

———————————

= Cash Flow

 

Note: The Depreciation and the Amortization are the lost value of an asset (computer, vehicle, land…) by being used to produce a finished good. We add them to the EAT because they helped to produce something and did not "go in smoke" for nothing.

 

If you take the Cash Flow and you remove everything that is needed by the business (principle reimbursement, preferred stocks dividends, retained earnings) and the common stocks dividends (if so), you will get the Cash Flow Statement (another financial statement of the company).

 

Cash Flow

– Principle Reimbursement

– Preferred Stocks Dividends

– Retained Earnings

– Common Stocks Dividends

———————————–

Cash Flow Statement

 

 

The Cash Flow Statement is intended to:

 

1. provide information about a company’s liquidity and solvency

2. provide additional information for evaluating change in assets, liabilities and equity

3. improve the comparability between different companies’ performance

4. indicate am0unts, timing and probability of the future cash flow

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