From the course: Financial Accounting Part 2
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Cash flow patterns
From the course: Financial Accounting Part 2
Cash flow patterns
- The normal pattern of positive inflows or negative outflows of cash reported in the cash flow statement is as follows: positive cash from operating activities, negative cash from investing activities, and positive or negative cash from financing activities. Now, most companies, over 70% in the United States, generate positive cash flow from operations. In fact, suffering several periods of negative cash from operations is a short indicator of financial trouble. In normal times, most companies use cash to expand or enhance long-term assets, so cash from investing activities is usually negative about 85% of the time in the United States. A company with positive cash from investing activities is selling off its long-term assets faster than it's replacing them. Now, predicting whether the sign of cash from financing activities will be positive or negative is more difficult. The sign depends on where the company is, young and…
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