Read the cash flow statement (3 sections) — Hinglish notes

2.4.7 · Stock-Market › Financial Statements

Cash Flow Statement Kya Dikhata Hai

Cash Flow Statement (CFS) cash movements ko 3 categories mein todta hai:

Operating Activities (CFO) — Core business se cash
Investing Activities (CFI) — Long-term assets par kharch/kamaya gaya cash
Financing Activities (CFF) — Investors aur lenders se/ko cash

Equation:

Net Change in Cash = CFO + CFI + CFF

Yeh balance sheet ke cash change ke saath periods ke beech zaroor reconcile hona chahiye.

Section 1: Operating Activities (CFO)

CFO ko Net Income Se Derive Karna

Net income se kyun shuru karein? Income statement accrual accounting use karta hai. Hum ise convert karna chahte hain cash basis par.

Step-by-step derivation:

CFO = Net Income + Non-cash Expenses + Δ Working Capital

Breakdown:

Net Income se shuru karein (income statement se)
Non-cash expenses add back karein:
- Depreciation & Amortization — Yeh net income ko reduce karte hain lekin company se koi cash nahi gaya
- Example: $10 K d e p r ec ia t i o nk ama tl abhain e t in co m e$ 10K kam hai, lekin woh $10K abhi bhi bank mein hai
Working Capital changes ke liye adjust karein:
- Accounts Receivable ↑ → Cash ↓ (sales ki lekin collect nahi ki)
- Inventory ↑ → Cash ↓ (inventory kharida lekin becha nahi)
- Accounts Payable ↑ → Cash ↑ (suppliers ko dena hai lekin abhi pay nahi kiya)

Formula:

CFO = Net Income + D&A - Δ AR - Δ Inventory + Δ AP

Worked example Operating Cash Flow Calculation

Company X, 2025:

Net Income: $100K
Depreciation: $20K
Accounts Receivable mein $15K ki bdhoti hui (credit par becha)
Inventory mein $10K ki bdhoti hui (stock kiya)
Accounts Payable mein $8K ki bdhoti hui (supplier payments delay ki) Har step kyun?

CFO = 100K        ← Net income se shuru
    + 20K         ← Depreciation add karein (real cash expense nahi thi)
    - 15K         ← AR increase subtract karein (cash collect nahi hua)
    - 10K         ← Inventory increase subtract karein (cash kharch hua)
    + 8K          ← AP increase add karein (payment delay karke cash bachaya)
    = 103K        ← Actual operating cash generated

Interpretation: Net income $100 K t ha, a u r o p er a t in g c a s h$ 103K tha. $20 K d e p r ec ia t i o na dd - ba c k n ec a s hb oos t k i y a, l e k in$ 25K receivables aur inventory mein phans gaya (jo $8K delayed payables se thoda offset hua). Yahan CFO > Net Income — efficient cash conversion ki ek healthy nishani.

Figure — Read the cash flow statement (3 sections)

Section 2: Investing Activities (CFI)

Yahan Kya Aata Hai

Cash Outflows (negative):

Capital Expenditures (CapEx) — PP&E kharidna (property, plant, equipment)
Doosre businesses acquire karna
Securities kharidna (doosri companies ke stocks/bonds)

Cash Inflows (positive):

PP&E bechna
Investments bechna
Asset sales se proceeds

Formula:

CFI = Asset Sales - Asset Purchases - CapEx - Acquisitions

Worked example Investing Activities Example

Company Y, 2025:

Naya factory $200K mein kharida (CapEx)
Purana equipment $30K mein becha
Competitor ko $50K mein acquire kiya Har step kyun?

CFI = +30K        ← Equipment bechne se cash
    - 200K        ← Factory par cash kharch (growth mein invest kar rahe)
    - 50K         ← Acquisition par cash kharch
    = -220K       ← Net cash used investing

Interpretation: Company growth mein heavily invest kar rahi hai. Expanding businesses ke liye Negative CFI normal hai.

Key Metric: Free Cash Flow

Free Cash Flow (FCF) = CFO - CapEx

Kyun zaroori hai: FCF business maintain/grow karne ke baad available cash hai. Iska use ho sakta hai:

Dividends dene mein
Shares buyback karne mein
Debt reduce karne mein
Acquisitions mein

Derivation: Operating cash se shuru karein (business kya generate karta hai), capital expenditures subtract karein (jo aapko zaroor kharcha karna hai operate/grow karne ke liye). Jo bachta hai woh shareholders ke liye "free" hai.

Worked example Free Cash Flow Calculation

CFO = $500K (operations se)
CapEx = $150K (naye machines kharidi) Yeh calculation kyun?

FCF = 500K - 150K = 350K

Matlab: Business chalate hue $350K shareholders ke liye available hai. Positive FCF matlab self-sustaining; Negative FCF matlab cash burn ho raha hai (external funding chahiye).

Section 3: Financing Activities (CFF)

Yahan Kya Aata Hai

Cash Inflows (positive):

Stock issue karna (equity financing)
Paise borrow karna (debt financing)

Cash Outflows (negative):

Dividends pay karna
Shares buyback karna (treasury stock)
Debt repay karna

Formula:

CFF = Debt Issued + Equity Issued - Debt Repaid - Dividends - Share Buybacks

Worked example Financing Activities Example

Company Z, 2025:

$100K ke naye shares issue kiye (equity raise ki)
Bank se $50K borrow kiya
$20K dividends diye
$30K purana debt repay kiya Har step kyun?

CFF = +100K       ← Shares bechne se cash
    + 50K         ← Loan se cash
    - 20K         ← Shareholders ko cash diya
    - 30K         ← Lender ko cash wapas kiya
    = +100K       ← Net cash from financing

Interpretation: Company net capital raise kar rahi hai (pay out karne se zyada la rahi hai). Startups ya expanding businesses ke liye common hai.

Sab Kuch Ek Saath Jodna

Worked example Full Cash Flow Statement

Company ABC, 2025:

Section	Amount
Operating Activities
Net Income	$200K
+ Depreciation	$40K
- Increase in AR	-$20K
- Increase in Inventory	-$15K
+ Increase in AP	$10K
CFO	$215K
Investing Activities
-CapEx	-$100K
+ Asset Sales	$20K
CFI	-$80K
Financing Activities
+ Debt Issued	$50K
- Dividends	-$30K
CFF	$20K
Net Change in Cash	$155K

Har section kyun?

**CFO = $215 K : * * C or e b u s in essso l i d c a s h g e n er a t e k a r t ahai ($ 200K ke net income se zyada — efficient!)
**CFI = - $80 K : * * G r o w t hm e inin v es t k a r r ahahai (C a pE x$ 100K) lekin asset sales se kuch wapas liya
CFF = $20K: Net capital raise kiya (pay out karne se zyada borrow kiya)
Total: Cash $155K badh gaya

Balance sheet check: Agar saal ke shuru mein cash $300 K t ha, t o h e n d m e in$ 455K hona chahiye.

Cash Flow Statement Ko Analyze Kaise Karein

1. Operating Cash Flow Quality

Test: Kya CFO consistently positive aur net income se zyada hai?

Good: CFO > Net Income → Company profits ko actual cash mein convert karti hai
Warning: CFO < Net Income → Profits "paper" par hain (receivables/inventory mein atke hain)
Red flag: Negative CFO → Core business cash khota hai (unsustainable)

2. Capital Intensity

Test: CapEx ratio kya hai?

CapEx Ratio = \frac{CapEx}{CFO}

Low (<20%): Asset-light business (software, services) — aasani se scale hota hai
High (>50%): Capital-intensive (manufacturing, telecom) — constant investment chahiye

3. Sustainability Pattern

CFO	CFI	CFF	Interpretation
+	-	-	Ideal (self-funding growth, cash owners ko return kar raha hai)
+	-	+	Growing (cash aur debt ke mix se expansion fund kar raha hai)
-	-	+	Danger (cash burn ho raha hai, survive karne ke liye borrow kar raha hai)
-	+	+	Crisis (alive rehne ke liye assets bech raha hai aur borrow kar raha hai)

Recall Feynman: Ek 12-Saal Ke Bacche Ko Explain Karo

Socho tum ek lemonade stand chalate ho. Cash Flow Statement tumhari diary hai jahan actual paisa kahan jaata hai woh likha hai:

1. Operating (lemonade banana/bechna):

Tum 100 cups $1 e a c hm e inb ec h t e h o =$ 100
Lekin 10 bacche kehte hain "kal dunga" (receivables) = sirf $90 haath mein
Lemons kharide $40 m e in (in v e n t or y), a p n e d os t k o$ 10 help ke liye diya (wages)
Operating Cash = $40 jo tumhare paas lemonade bechne se hua

2. Investing (badhne ke liye cheezein kharidna):

Ek fancy juicer $30 mein kharida (CapEx)
Investing Cash = -$30 (equipment par kharch kiya)

3. Financing (doosron se/ko paisa lena/dena):

Papa ne $20 start karne ke liye diye (debt)
Tumne unhe is mahine $5 wapas diya
Financing Cash = $15 (net borrowed)

Total: $40 (o p er a t i o n s) -$ 30 (juicer) + $15 (p a p ak a l o an) = * *$ 25 zyada cash jab shuru kiya tha tab se**

Cash flow statement dikhata hai ki aaj tumhare actual piggy bank mein kal se $25 zyada hain. Yahi matter karta hai — na ki tumne apni notebook mein kitna "profit" likha!

Cash Flow Analysis Mein Common Mistakes

Key Connections

Yeh note in se connect hota hai:

Cash vs Acrual Accounting — CFS income statement se kyun alag hai
Working Capital Management — AR, inventory, AP CFO ko kaise affect karte hain
Free Cash Flow Valuation — Companies ko value karne ke liye FCF use karna
Capital Expenditure Analysis — CapEx decisions mein deep dive
Debt vs Equity Financing — CFF section choices ko samajhna
Balance Sheet Reconciliation — CFS BS cash changes se kaise link hota hai
Operating Margin vs Cash Margin — Profitability vs cash generation
Financial Statement Linkages — CFS income statement aur balance sheet se kaise juda hai

#flashcards/stock-market

Cash Flow Statement ke teen sections kya hain? :: Operating Activities (CFO), Investing Activities (CFI), aur Financing Activities (CFF)

Operating Cash Flow (CFO) kya measure karta hai?

Company ki core business operations (products/services bechne) se generate hua cash

CFO calculate karte waqt depreciation ko net income mein wapas kyun add karte hain?

Depreciation net income ko reduce karta hai lekin company se koi actual cash nahi gaya (non-cash expense hai)

Agar Accounts Receivable badhta hai, toh cash upar jaata hai ya neeche?

Cash neeche jaata hai (credit par sales ki lekin abhi tak paisa collect nahi hua)

Capital Expenditure (CapEx) kya hota hai?

Long-term assets jaise property, plant, aur equipment par kharch kiya gaya cash (CFI section mein milta hai)

Free Cash Flow ka formula kya hai?

FCF = Operating Cash Flow - CapEx

Negative CFI typically kya indicate karta hai?

Company growth mein invest kar rahi hai (assets, equipment kharid rahi hai, acquisitions kar rahi hai) — expanding businesses ke liye normal hai

Financing Cash Flow (CFF) mein kya activities shamil hain?

Owners aur lenders se/ko cash: stock issue karna, borrow karna, debt repay karna, dividends dena, share buybacks

Net Change in Cash ka formula kya hai?

Net Change in Cash = CFO + CFI + CFF

Healthy Cash Conversion Ratio kya hota hai?

CFO / Net Income > 1.0 (company profits ko efficiently actual cash mein convert karti hai)

Agar kisi company ka CFO positive aur CFF negative hai, toh yeh kya signal deta hai?

Healthy mature company (operations se cash generate kar rahi hai, shareholders ko dividends/buybacks ke zariye wapas kar rahi hai)

Free Cash Flow kyun important hai?

Business maintain/grow karne ke baad available cash dikhata hai — dividends, buybacks, debt reduction, ya acquisitions ke liye use ho sakta hai

Cash flows mein red flag pattern kya hai?

Negative CFO + Negative CFF = Danger (core business cash khota hai aur company survive karne ke liye borrow kar rahi hai)

Agar Inventory badhti hai, toh cash ka kya hota hai?

Cash kam ho jaata hai (company ne cash kharch karke inventory kharida jo abhi biki nahi hai)

CapEx Ratio kya measure karta hai?

CapEx / CFO — dikhata hai business kitna capital-intensive hai (high ratio = constant investment chahiye)