Cash Flows and the Cash Flow Statement
In This Chapter
Separating the three types of cash flows
Figuring out how much actual cash increase was generated by profit
Looking at a business’s other sources and uses of cash
Being careful about free cash flow
Evaluating managers’ decisions by scrutinising the cash flow statement
This chapter talks about cash flows – which in general refers to cash inflows and outflows over a period of time. Suppose you tell us that last year you had total cash inflows of £145,000 and total cash outflows of £140,000. We know that your cash balance increased by £5,000. But we don’t know where your £145,000 cash inflows came from. Did you earn this much in salary? Did you receive an inheritance from your rich uncle? Likewise, we don’t know what you used your £140,000 cash outflow for. Did you make large payments on your credit cards? Did you lose a lot of money at the races? In short, cash flows have to be sorted into different sources and uses to ...