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Subject 1. Evaluating Sources and Uses of Cash PDF Download

Analysts should assess the sources and uses of cash between the three main categories and investigate what factors drive the change of cash flow within each category.

Operating cash flow: If operating cash flow is growing, does that indicate success as the result of increasing sales or expense reductions? Are working capital investments increasing or decreasing? What are the main drivers? How is it compared to net income? Is it consistent?

Investing cash flow: How much money is invested in PP&E? How much is put aside in liquid investments? What are assets being sold?

Financing cash flow: What are the company's capital source? Is the company dependent on external financing? Why is capital raised or repaid?

Answers to questions like these are critical for analysts and can help form a foundation for evaluating the financial health of an industry or company.

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Martin Rockenfeldt

Martin Rockenfeldt

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