Besides introducing you to corporate accounting, the purpose of this chapter has been to teach you how to determine cash flow from the accounting statements of a typical company.
Cash flow is generated by the firm and paid to creditors and shareholders. It can be classified as:
Cash flow from operations.
Cash flow from changes in fixed assets.
Cash flow from changes in working capital.
Calculations of cash flow are not difficult, but they require care and particular attention to detail in properly accounting for noncash expenses such as depreciation and deferred taxes. It is especially important that you do not confuse cash flow with changes in net working capital and net income.
