Principles of Finance: Unit 3, What is Cash Flow

There are three sub-totals that comprise cash flow: cash from operations, cash from investing activity, and cash from financing activity. Johnny Cash just missed the cut.

CoursesFinance Concepts
Principles of Finance
FinanceFinancial Responsibility
Personal Finance
Finance and EconomicsPrinciples of Finance
LanguageEnglish Language
Life SkillsPersonal Finance
SubjectsFinance and Economics

Transcript

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cash buying a new factory It's cash will have flowed

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the outward you know in the wrong direction from what

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you want it or it's three years later And the

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company is depreciating the value of that factory for which

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it paid a boatload of cash in a previous year

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So it still has to show noncash losses on its

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income statement or its earnings Got it So you're going

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to depreciate the downright ing of the value of that

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factory but they cash flow from the company in that

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year set of earnings is solid That is ah company

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showing earnings of one hundred million dollars might have depreciated

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forty million dollars that year in factory depreciation expenses that

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were non cash So that company may have actually had

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cash flow in excess of their earnings like one hundred

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forty million dollars instead of one hundred So you have

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to track cash flow as another indicator of company profitability

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or really risk getting lost And there is in place

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a standard format for the manner in which company's cash

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flows give reported In essence there are three sub totaled

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reports that comprise cash flow You start with cash from

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operations basically that's just starting with net income and then

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adding back depreciation amortization After cash from ops you calculate

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cash generated or sucked away from infesting activities Right Like

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if you bought a new tractor smelting plant you spent

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cash it was sucked away If you sold forty thousand

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acres you realized you didn't really need any more Because

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you're outsourcing your plutonium dumping that china will Then you

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generated cash And finally your third section is cash flows

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from financing activities So if you you know bought back

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your own stock than you consumed cash from that financing

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activity poor if you raised money in an ai po

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or a secondary offering while you generated cash from that

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financing activity got it all right Normal income statement earnings

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are rough ported on an accrual basis That is they

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include placeholders for the decline in value of that tract

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Or smelting factory that you will someday have to replace

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But reducing the value of that factory by twelve million

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dollars a year for twenty years on your books is

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a non cash charge It's van tum Until you you

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don't have to go a cash to go build a

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new one then it's not so phantom but the world

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changes fast especially in the land of technology and a

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lot of things that accountants thought would die in five

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years which costs five million dollars To start could be

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replaced bigger better faster stronger five years after they were

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purchased for like one tenth of the price of which

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they were being advertised away like think about how much

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computers used to cost versus you know what an iphone

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is today so paying attention to the actual thing that's 00:03:13.918 --> [endTime] being advertised or depreciated is key here Oh no