4
Financial Statement AnalysisModule 4 of 9

Analyzing Statements of Cash Flows I

6

Concepts

3

Formulas

1

Decisions

4

Quiz Questions

Key Concepts

6 concepts covered in this module.

Operating Activities (CFO)

Cash from core business operations. Start from net income (indirect) or cash receipts (direct). THE most important section.

Investing Activities (CFI)

Purchases/sales of long-term assets, investments. Negative CFI often signals growth investment.

Financing Activities (CFF)

Debt issuance/repayment, equity issuance/buyback, dividends. Shows how the company funds itself.

Direct vs Indirect Method

Direct: shows actual cash receipts/payments. Indirect: starts with NI, adjusts for non-cash items and WC changes. Same CFO result.

Non-Cash Adjustments (Indirect)

Add back: depreciation, amortization, losses. Subtract: gains. Adjust for WC changes (increase in assets = subtract, increase in liabilities = add).

IFRS vs GAAP Classification

Interest paid: CFO (GAAP) or CFO/CFF (IFRS). Interest received: CFO (GAAP) or CFO/CFI (IFRS). Dividends paid: CFF (GAAP) or CFO/CFF (IFRS).

Formulas

3 essential formulas for this module.

CFO (Indirect Method)

CFO = NI + Non-cash charges + ΔWC

Where: Add depreciation, subtract gains, adjust for changes in current assets/liabilities

WC Adjustment Rule

ΔCurrent Asset ↑ = Subtract from NI; ΔCurrent Liability ↑ = Add to NI

Where: Increase in AR means cash not yet collected; increase in AP means cash not yet paid

Total Cash Change

ΔCash = CFO + CFI + CFF

Where: Must reconcile to change in cash balance

Decision Frameworks

1 decision frameworks to guide your analysis.

Direct vs Indirect method?

  • Direct: better for understanding actual cash flows (preferred by IASB)
  • Indirect: more commonly used, easier to prepare, shows link to NI

Mind Map

Visual overview of how concepts connect in this module.

Cash Flow Statement
CFO
Core operations
Direct: actual cash flows
Indirect: start from NI
WC adjustments
CFI
Buy/sell PP&E
Buy/sell investments
Negative = growth spending
CFF
Debt issuance/repayment
Equity issuance/buyback
Dividends paid
IFRS vs GAAP
Interest: CFO vs choice
Dividends paid: CFF vs choice
Tax: CFO vs allocated
Free Study Dashboard

Don't just read Analyzing Statements of Cash Flows I — practice it

Everything on this page becomes interactive on the study dashboard, free.

  • 10 interactive flashcards built from this page
  • 4 exam-style quiz questions with instant scoring
  • Progress tracking across all 9 Financial Statement Analysis modules
Open Study Dashboard

No signup required. Create an account anytime to save progress.

Try it right here

Flashcard

Operating Activities (CFO)

Tap to reveal the answer

Answer
Cash from core business operations. Start from net income (indirect) or cash receipts (direct). THE most important section.
Sample 1 of 5
Study all 10 flashcards on the dashboard

Previous Module

Analyzing Balance Sheets

Next Module

Analyzing Statements of Cash Flows II