From the course: Financial Accounting Part 2
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One method of analysis
From the course: Financial Accounting Part 2
One method of analysis
- [Instructor] As we know, there are three activities summarized in the statement of cash flows: operating, investing, and financing. The investing and financing activity sections are relatively straightforward and easy to understand. Not so fast with the operating activities section. Now why are things easy for investing and financing? Because if property and equipment goes up over a year, you bought more. If they go down, you sold more than you bought. If your long-term debt went up over the year, you borrowed more. If it went down, you paid debt back. Likewise, if paid in capital went up, you sold more stock. It's relatively straightforward. But with the operating activity section, it gets a little tougher. How does one determine how much cash was generated through a company's operations? This requires us to undo some of the accrual adjustments that go into creating the income statement. Let's practice converting…
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