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Describe the three key cash-related activities of a firm.

Question:

Describe the three key cash-related activities of a firm.

Cash Flow Activities

Cash flow activities are activities that a business establishment engages in, the primary objective being to generate profits. The decrease and increase of the amount of money owned by an individual, institution or company can be termed as cash flow.

Answer and Explanation:

There exist various cash flows that have numerous important uses for performing financial analysis and running the operations of a business. Subject to the nature of the transaction, cash flows can be classified as financing, operating and investing activities. Investing activities refer to those cash activities that are correlated to noncurrent assets. The principal debt amount to other entities, equipment and properties, and long-term investments are types of non-current assets. Cash invested in other companies and cash that is gained through property sales are classified in this class. Operating activities refer to cash activities that are directly associated with the net income. They are made up of cash paid to cater for expenses and cash that is gained through the sale of commodities. Lastly, those cash activities that are associated with the equity of the owner and those liabilities classified as noncurrent are referred to as financing activities. The equity of the owner and noncurrent liabilities are made up of payments for dividends, stock repurchases, and sale and the basic amount of long-term debt.


Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
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