Cash Flow & Operating Earning

Written by Patricia Tunstall
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Cash flow & operating earning are inextricably connected. If cash flow is oversimplified as the inflow and outflow of cash in a business, it must then be further explained in order to make sense of it in terms of the daily operations of the business. Operating earnings are one aspect of a comprehensive reporting of cash flow that provides managers, shareholders, and executives with a detailed overview of the company's strengths and weaknesses.

Cash flow consists of three aspects of an enterprise's performance: operating, investing, and financing activities. These categories reveal the sources of the company's income and the sources of its expenses. A manager or shareholder should be able to determine where the business is exceeding expectations and where it is faltering. The report should also enable them to pinpoint any corrective actions that should be undertaken to increase capital or profit.

Operating Activities

Operating activities can be defined as the profit-making activities of a business, so cash flow from profit reveals the means by which the company makes a profit and in turn converts that profit into cash flow. What do operating activities include? Accounts receivable and payable, inventory increases, depreciation, and prepaid expenses.

In short, assets and liabilities are detailed as one part of a cash flow statement. When added to cash flow from investing activities and from financing activities, a reader of the statement has a picture not only of the income and expenses of the company. The purpose of a comprehensive cash flow & operating earning report is to give a clear idea of the financial health of the company.

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Thank you for the post

Thanks for the article. It really give a good insight regarding cashflow and operating activities.
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