![]() These activities are categorized as investing activities. A company will also sell these assets when they are outdated or when it needs to fund the purchase of new assets. How much cash has Google, Wal-Mart, and American Airlines generated or used in operating activity according to their respective cash flow statements? Investing Activities Section of the Cash Flow StatementsĪ company will need to spend money on assets like equipment, buildings, land, etc., to grow or maintain its business. We can see that although Apple has reported a net income of only $25 billion, it has generated $38 billion from its operating activities. Operating activity section of Apple, Inc. At this level, it is sufficient to understand the total amount of cash generated by or used in operating activities. We will not study the mechanics of computing the cash flow from operating activities of either the direct or indirect method at this level. The direct method presents the cash collected by the business from operations and subtracts the cash paid for operating activities. It also removes the non-operating activities that were included in the income statement. The indirect method starts with the net income figure derived from the income statement and adds or subtracts the difference between cash collected and amounts presented in the income statement to arrive at the actual cash position from operations. Most companies use the indirect method to report the cash flow statement because the accounting processes and systems commonly used make this convenient. The operating section of a cash flow statement may be presented in two ways: the indirect method and the direct method. The purchase and sale of land will be considered as an operating activity for a real estate company. For example, the operating activities of a watch company will be the manufacturing, marketing, and selling of watches. The operating activities of a business will depend on the nature of the business. It consists of the activities involved in selling goods and/or providing services that generate revenues and expenses for the company. The term “operating activities” refers to the core activities of the company or business. What do you notice in the cash flow statements of Google, Wal-Mart, and American Airlines? Operating Activities Section of the Cash Flow Statements The net impact of this was a negative $1.4 billion indicating that it has $1.4 billion less cash and cash equivalents than it had at the beginning of the year. Apple also raised $1.4 billion in funds to invest in the business. It invested about $40 billion of cash into its business. If we look at Apple’s cash flow statement and pull out this information, we will see that Apple generated $38 billion dollars of cash from its operations. Select figures from Apple, Inc.’s 2011 Cash Flow Statement This sum of the changes, when added to the cash and cash equivalents at the beginning of the period, will give me the cash and cash equivalents at the end of the period. The sum of changes in these three categories will reflect the overall increase or decrease of cash and cash equivalents during the period. The cash flow statement categorizes its cash activities into three categories: It is the cash flow statement that tells me how the company generated or consumed its cash and cash equivalents. While the balance sheet of the company can tell me what the cash and cash equivalents balance at the beginning of the period and the end of the period were, it cannot tell me how the company generated or consumed the cash. Therefore, the cash flow statement considers both cash and cash equivalents alike and explains the changes in the total cash and the cash equivalents. ‘ Cash Equivalents’ is a term applied to highly liquid investments as well as marketable securities that can be converted into known amounts of cash. ![]() The cash flow statement highlights the company’s cash spent or generated from its operating, investing, and financing activities. ![]() Did the company raise money from its shareholders and lenders?.How much money did the company pay its shareholders and lenders?.How much money did the company invest in its business?.How much money did the company generate from its operations?. ![]()
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