| Cash flow (CF) statement quite obviously describes | | | | Lastly, we look at CF from Financing Activities. |
| whether cash is flowing in or out of a company. | | | | Money used in the payment of dividends or in the |
| There are three sections. Firstly, CF from operations. | | | | buy back of shares results in negative cash flow. |
| Secondly, CF from investments. Lastly, CF from | | | | Shareholders like dividend payouts. They also like to |
| financing activities. | | | | see the value of their shares rising which happens |
| CF from Operations is an aggregate of Net Income | | | | when a company does a share buy back. So, |
| and any depreciation or amortisation put back. | | | | negative cash flow here is actually good for |
| Depreciation and amortisation represent money which | | | | shareholders. |
| was spent years ago and must be added back to | | | | Money gained from selling new shares or issuing |
| give us an accurate picture of the company's CF | | | | bonds provides positive cash flow. Here, again, we |
| from Operations. Here, not only do we want to see | | | | get a bit of a twist. The company might get positive |
| a positive cash flow, the higher the cash flow, the | | | | cash flow through the issuance of new shares or |
| better. | | | | bonds but it is actually bad for the shareholders as |
| Next, we examine CF from Investments. Businesses | | | | their shareholdings are diluted and bonds have to be |
| make investments in income producing assets such | | | | repaid with interest. Unless the company is able to |
| as production equipment. Any money spent making | | | | demonstrate that it will be able to use the funds |
| such investments are labelled Capital Expenditures | | | | raised to increase value for its shareholders, it has to |
| (CAPEX). It is also possible for companies to sell such | | | | be looked at most cautiously. |
| investments and we might therefore get a positive | | | | This article ends the quick introduction to |
| figure under Others. However, here, cash flow is | | | | Fundamental Analysis which I set out to write |
| usually a negative figure. Companies which | | | | starting with The Income Statement and followed by |
| consistently have very high CAPEX should show that | | | | the Balance Sheet. I hope you have found these |
| they are able to fund this through internal resources | | | | articles informative and if you are not already doing |
| as far as possible and that they should be able to | | | | FA, I hope these have made you interested enough |
| generate higher returns on such expenditures. | | | | to look into the subject in greater detail. |