What Is a Cash Flow Statement and How Can Investors Use It to Their Own Advantage?

The cash flow statement is a statement produced by the public companies on an annual basis in order to identify the inflows and outflows of cash. As opposed to the income statement that identifies the profit for the year, the cash flow statement provides a true picture of the cash in hand of the business. Thus, this statement is useful for understanding the liquidity position of the company. The cash balance presented in the balance sheet is tied with the profit shown in the income statement and therefore the cash statement provides a link between the statement of financial position and statement of comprehensive income.

The cash flow statement identifies various sources of inflow and outflow of cash which are categorized into three major aspects namely operating, financing and investing flows of cash. The operating activities measure the cash that arises as a result of business operations and this starts with the profit after tax as reported in the income statement. Non cash expenses such as depreciation are added back to the PAT whereas accruals of interest and tax expense are adjusted so that the cash outflow is determined.

Changes in the working capital are identified and these are also adjusted accordingly in order to arrive at cash generated from operating activities. The next component of the statement is the investing cash that largely pertain to the capital transactions of the business. Any purchase and sales of property, plant and equipment is recorded in this section in order to identify the net cash from financing activities. Lastly, the financing section highlights the business transactions that are meant to raise finance such as debt issue, equity issue or loan repayment. The financing section highlights the changes in capital structure that came about in a given year. The net result of the cash from operating, investing and financing activities is the cash flow generated during a given year. This is then added with the balance at bank at the year start so that the balance at the year end is computed. This is then verified with the balance shown in the current assets within the balance sheet.

The cash flow statement is of immense importance to the investors as they can identify transactions that are not depicted in the balance sheet and income statement. The company’s cash position determines the liquidity of the firm and the change in cash from year start to the year-end would help the investors in identifying the change in liquidity position. An assessment of the liquidity would enable the investor to identify the ability of the business to pay off its debts with ease.

The cash flow statement can also be used by the investors to identify the free flow of cash within a business. This information is not presented by the income statement that is based on the concept of accruals and prudence. The free flow of cash within a business would help in identifying the true cash that’s generated as a result of the operations after the deduction of any capital expenditure that is required to maintain the operations of the company. Low or negative cash flows would indicate the lack of operating efficiency of the business and therefore investors must analyze the FCF of a given firm over a period of time.

The cash flow statement is also an indicative of the current capital expenditure policy of the firm. The investing section would highlight the expenditure on equipment. A negative or a positive investing cash flow does not indicate the true position of the company. A negative cash flow might arise as a result of high capital expenditure in a given year whereas a positive investing cash flow could come about as a result of sale of equipment. These are one off items and must not be used as a means to assess the liquidity position of a company. An investor can therefore identify the underlying reasons for negative or positive cash flow and therefore ascertain the future stream of cash flows. For example, a large outflow in the present year might result in low or negative cash balance but it is likely to result in more efficient operations which would enhance profitability and thus earning per shares. The investor can therefore use this information to predict the future profitability and operating capacity of the organization.

Furthermore, the finance section depicts the financing activities of the business and allows the investor to ascertain the changes made within the capital structure in a given year. For example, an investor can analyze the increase in debt or equity in a given year and therefore ascertain the changes in financial risk that a firm faces. An investor would also be able to determine the true reason for the cash in hand. For example a low cash balance might indicate low liquidity at a glance. But in reality it might be as a result of debt repayment which is a one off item and therefore the investor would easily be able to conclude that the business at present does not face a shortage of cash due to inefficient operations but simply because of repayment of debt.

An investor is thus able to analyze the various inflows and outflows of cash from the cash flow statement and also ascertain the sources of cash. Investors are able to identify the free cash flows generated from operations and therefore are able to analyze the ability of the business to pay back its debt while also meet its interest payments. The growth prospects and the ability to pay out dividends can also be predicted from FCF. The investor is able to analyze the investment policy of the company for example a firm is likely to pursue an aggressive investment strategy if there are capital outflows over a period of time. Thus, the cash flow statement is of immense importance to the investors who can use it to ascertain the various sources of cash inflow and outflow.

I Have Money to Invest, What Should I Do? An Unorthordox Way of Investing Your Money

If I have money to invest; what should I do to ensure I get returns but also put myself in line to actually make big returns once in a while?

The answer to that very valid question is that you will probably have to look at something unorthodox as your investment options, since the obvious investment vehicles are in fact obvious for a reason.

Nothing extraordinary will come of the usual stuff. You might make a comfortable income and actually even reach financial freedom, but chances are you will constantly have to be involved in the ground level operational tasks, effectively making you self-employed instead of an outright investor.

What exactly is meant by getting into unorthodox investments really?

To answer that question, we will first have to discuss what orthodox investments are and these include anything which is considered to be the norm in the world of investments.

Things like getting into the stock markets and shares trading, forex trading, setting up sales web sites, buying up bonds, getting into property, getting into farming and agriculture and anything else you can think of, from the top of your head, as an investment people get into everyday, counts as an orthodox investment.

A lot of safety and familiarity is offered through the orthodox investments, so the allure is self-explanatory.

Unorthodox investments have a different kind of allure though, as they come with a whole lot of added dynamics.

The thrill of knowing that probably no two days will be the same makes for some very interesting times, during the various stages of your investment operations, if you are going the unorthodox route.

There are varying degrees of unorthodox investments and some cases are very extreme, while others aren’t all that much of a change from the normal investments. The only difference would be that the unorthodox investment schemes have twists to them that make them a little bit unusual, out of this world and unique in a sense.

Examples of unorthodox investments include those areas where most people don’t even know there is an opportunity to make money.

If you know how to look for opportunities, you will have absolutely no problem spotting investments in any unorthodox setup and an example could be the likes of waste management, organic compost farms and anything else that is just beyond the thoughts of many eager investors.

Taking a closer look at the examples we touched on, waste management is something usually left to the government or local municipality.

If you have a few small trucks at your disposal, or you can get one or two, you can get into the recycling business.

You can go around collecting people’s garbage and then sorting it into recyclable goods, to be resold to recycling plants, and then discarding of the remainder of the waste.

With regards to the organic compost farm, if you have a piece of land some way away from any residential area, you can store some of the organic waste from your recycling business and let it decompose to be packaged and sold as organic fertilizer.

How Does Affiliate Marketing Vary From Other Businesses?

What is affiliate marketing? It’s a type of internet marketing where you have affiliates that guide traffic to various advertisers’ websites to produce sales. The advertiser then gives the affiliate a profit each time someone reaches the website and makes a sale under that affiliates’ referral code. Some affiliates even place ads on their websites that link back to those advertisers’ sites. This kind of online business has its advantages and risks. The types listed here may help those that are contemplating getting into this kind of business.

Affiliate marketing is considered to be a low cost business and sometimes there may be no investment required to get started. People are often times worried about the amount of capital needed to start a home based business, so with affiliate marketing there is no huge investment to be made. One can basically get started in some of these affiliate sites for no cost and should they want to advertise to the masses, they can purchase advertising means if they choose. There are more than enough free means of advertising out there as well but some people prefer buying advertising over the no cost methods.

Many other businesses require you to have inventory which puts stress on individuals that have to deal with product management. With affiliate marketing, no inventory is required. All of that will be handled by merchants, which allows this to be an advantage of getting into this business.

The income potential is unlimited and depends on your work efforts. The more successful you are with affiliate marketing, the more money you make. You can be confident that the higher your page ranks, the more sales you will get over time. Once you have your business up and running just how you’d like, there will be no need to invest anymore into it. Other businesses put a limit on your income potential and in order to expand those other businesses you will have to invest more.

In the affiliate marketing arena, your target market is not always limited to specific countries or cities. The majority of this industry is worldwide and that allows you to drive traffic from virtually anywhere in the world to your website. This doesn’t work so well with other businesses that are not global and only allow traffic from specific countries.

Affiliate marketing presents no risk because you are not making a huge investment upon starting. This very reason is why it has become so appealing to more and more people on a daily basis. Your time is the only real risk that is involved in your affiliate business so you want to be sure that you are using it wisely. You want to be sure that you have sufficient knowledge of how the industry works so that you are not wasting your time and left making no profits.

With affiliate marketing, you have the world at your fingertips and can even make money while you are asleep. Your online business will be open around the clock and virtually everyone is a potential customer for you. The right product or service and the right market are needed in order for you to enjoy the benefits of your online business. There are so many advantages that affiliate marketing offers over those other businesses. The main ones are that there is less or no investment, your business is open 24 hours a day, and your earning potential is unlimited.

Not everyone will make it in affiliate marketing. This business requires a focus, adequate knowledge or trends in the market, and lots of patience. The drive to succeed will take you far in this industry if you are willing to stay a student. The only people that are at a risk in having an online business are those that don’t have the adequate knowledge and training to make it.