# Cashflow - Companies (or Governments) **only** go bankrupt when they run out of cash. - Cash is King, cash is least impacted by "the Art of Finance". - Net profit is **not equal** to cash - Revenue recorded on [[income-statement]] does not mean cash has been received. - Matching principle. - Expenses on [[income-statement]] are often **not** cash expenditures in the period. - Cash spent for inventory, capital equipment, etc., are not recorded on [[income-statement]]. (Expensed in later accounting periods) - Financing activities not reflected in [[income-statement]]. Bonds, loans, dividends paid, etc. > [!quote] > Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most. > > Profit is an opinion; Cash is a fact. ## Categories - Cash from or used in Operating Activities - Cash used/generated in running the business - Revenues, products produced, salaries, etc. - ==Overall health of company== - Cash from or used in Investing Activities - New equipment, factories, etc. - Business acquisitions or dispositions. - ==Is the company investing in itself?== - Cash from or used in Financing Activities - Loans, bonds, equity investment, dividends, etc. - ==How are you financing the company?== By borrowing (leverage) or equity? ## Operating Activities - Start with Net Income from [[income-statement]], add back **non-cash** expenses recorded in Income Statement over accounting period. Depreciation, amortization, accrued expenses, etc. - Reflect **changes** in *Operating Assets and Liabilities* on Balance Sheet over accounting period. - Asset Higher / Liability Lower - subtract from cash - Asset Lower / Liability Higher - add to cash ## Investing Activities - Property, Plant and Equipment (PPE) - Cash spent to buy equipment, buildings, etc. - Cash received if you sell PPE - Long-term investments (securities) - Business acquisition/disposition - Intangible asset acquisition/disposition ## Financing Activities - Debt -- borrow to finance business - Equity -- owners provide capital/cash to finance business - Stock issued -- cash received - Stock repurchased -- cash spent - Dividends issued -- cash spent