Introduction, format and cash flows from operating activities

In this lesson

1. 0:00 Introduction to cash flow statements
2. 0:28 Why cash flows matter more than profit
3. 2:03 Defining cash, equivalents, and activities
4. 3:23 Understanding cash equivalents in detail
5. 5:03 Indirect vs direct method explained
6. 6:03 Three sections of cash flow statements
7. 6:31 Operating activities: structure and adjustments
8. 9:08 Reconciling profit to operating cash flow
9. 10:43 Working capital changes and their impact
10. 12:02 Calculating interest and tax paid
11. 14:09 Worked example: Ruby cash flow statement
12. 19:50 Converting profit to actual cash generated

About this lesson

You'll start by exploring why cash flow statements matter more than profit figures for assessing liquidity and predicting future cash needs. The lesson covers the definitions you need to know: cash, cash equivalents, operating activities, investing activities, and financing activities. You'll then focus on the indirect method, which reconciles profit before tax to operating cash by removing non-cash items like depreciation and accounting for working capital changes. The session walks through the step-by-step process: adjusting for finance costs, depreciation, gains or losses on asset sales, and changes in inventory, receivables, and payables. You'll learn why increases in inventory or receivables reduce cash (you've paid out or not collected money) while increases in payables improve cash (you've deferred payment). Finally, you'll see how to calculate the actual interest and tax paid during the year—which differs from the expense in the profit and loss statement—and apply this to a worked example that shows how a company can generate more cash than profit.

Duration: 20m