Cash flows from operating activities

Cash flows from your company’s operating activities are the most important ones in terms they show whether your very core of business is generating or losing cash. A sustainable business is always earning cash so it’s important to have cash flows operating activities positive. Should it be that they are negative, it’s important to understand the reasons behind and ensure that it’s one-off and not a regular thing. 

Cash flows from your operations include such activities as your revenues from regular sales, receivables, inventories and regular payables (i.e. those related to buying goods and services related to providing sale of goods and services). Note here that in some cases you may decide to include paid interest for instance as a part of the operational activities, mostly if they’re for instance related to overdraft used for financing purchase of goods etc.

It’s important to note that operating activities related cash flows can be shown as direct or indirect cash flows. It depends on your local accounting framework, but as a general rule those two types are allowed for only the first group of the statement of cash flows, and not for the other two. If the balance sheet and income statement are prepared using the accruals basis, statement of cash flows is always prepared following the actual cash movement. If no cash has moved, the transaction is not reflected on the statement either.