Financial Report - Cash Flow

I noticed tend to forget the important points when reading the financial report. Hence, decided to write down important points to take note when reading the financial report. This is for my own good and at the same time can help and share with those who are interested.

The last part of financial report is Cash Flow statement. No matter how good the asset, if the company cannot service its debt, the company will fall in default. From the cash flow statement, we can know if the cash is flow in or out of the company.

Cash Flow statement divided into 3 sections, namely, Cash Flows from Operating, Investing and Financing.
1. Cash Flow from Operating shows the net income and any depreciation or amortization add back.
2. Cash Flow from Investing usually show negative, as the money spend to buy equipment or spend to maintain those equipment, we call them Capex or Capital Expenditures.
3. Cash Flow from Financing activities record down all the dividend payments or the company buy back it's shares. Here if negative is good for investor. However if the company issue shares or bond to have the positive cash flow, it's not good for investor as their share holding are diluted, unless the company able to demonstrate this will create share holder's value.

We are more interested to know what is the Free Cash Flow for the company. The formula for Free Cash Flow is Cash Flow from Operating minus Capex.

Free Cash Flow = Cash Flow from Operating - Capex

Red Flag: Be aware if the Free Cash Flow have a big swing. For example, from 2.4 million suddenly drop to negative 3.4 million, this may sound like.... something fishy!


  1. Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
    Positive cash flow investments USA


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