Cash Flow from Operating Activities
The cash flow statement begins with the operating activities section. Operating activities generally reflect cash generated and/or paid as a result of the firm’s core business functions. This part of the cash flow statement is the cash counterpart to income from operations as reported on the income statement. As such, it provides a useful comparison and contrast to the accrual accounting measures on the income statement, potentially highlighting effects of accrual accounting assumptions. Under U.S. GAAP, this category incorporates the cash received from customers, paid to suppliers, paid for operating costs, paid for income taxes, received from interest or dividends, and paid for periodic interest costs.
While cash payments for interest are included in the operating activities section, under U.S. GAAP, dividends paid out to equity capital holders are reported in the financing section. Therefore, interest payments and dividend payments appear in different sections of the cash flow statement under U.S. GAAP. IAS handles this issue differently, allowing the reporting company the option of including both interest and/or dividends in either operating or financing activities.
For more information, see all articles on: Accounting, Financial Statement Analysis, Fundamental Analysis See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
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