Cash from Operating Activities

Cash Flow Statement 1
Cash Flow Statement Discussion
Jerry Kennedy
Lewis Worcester
January 23, 2005
Cash Flow Statement 2
Cash Flow Statement Discussion
This paper will provide a cursory insight into how individuals and institutions benefit from the Cash
Flow Statement. The paper begins with a discussion of the three components that make up this statement:
operating activities, investing activities, and financing activities. It then concludes with a comparison of the two
accepted methods: direct and indirect.
Cash from Operating Activities
As indicated by the heading, this section describes how cash flows in an organization with regard to
operations. This is a key portion of the statement as it describes how an organization utilizes cash to maintain core
competency. Deficiencies in this section may indicate that the organization may not be competent to compete in a
particular line of business. This section answers the question: “How does the organization perform in the
Cash from Financing Activities
A key part of any organization is the way in which financing is managed. Newly formed entities require
large capital investments to support operations. In lay speak, this is known as leveraging. Depending on the
organization and structure of the finances, an entity may find that the monetary costs to support operations cannot
be overcome by operational activity. Simply stated, no matter how much the organization sells, financing will
preclude desired profit. The question this section addresses is: “Is the cost of capital available so excessive that the
firm is unable to make a profit given any operational scenario?”
Investing Activities
While important, investing is the least important of the three activities tracked on the Cash Flow
Statement. Certainly an organization is better served if available assets not directly targeted for operations are
managed in such away that they provide maximum ROI. Yet, such assets are not a part of the core business
Cash Flow Statement 3
Mason, R. S., (1976). Product maturity and marketing strategy. European Journal of Marketing, 10(1), p
36. Retrieved November 17, 2004, from EBSCOHost Research Databases
Market Structure Simulation-UOP Website.