What is cash flow from operating profits?

 Cash flow from operating activities (CFO) indicates the amount of money a company brings in from its ongoing, regular business activities, such as manufacturing and selling goods or providing a service to customers.

Cash flow from operating activities does not include long-term capital expenditures or investment revenue and expense. CFO focuses only on the core business, and is also known as operating cash flow (OCF) or net cash from operating activities.

Some essential points about operating cash flows are:-

1. It is the total amount of money being transferred into and out of regular business activities. 

2. It shows companies liquidity, necessary for operational efficiency.

3. It typically includes net income from the income statement and adjustments to modify net income from an accrual accounting basis to a cash accounting basis.

4.It shows the capacity of a company to generate immediate cash flows to repay liabilities if required all of a sudden.

5. Ideally operating cash flows of a fundamentally strong company shall have better or higher cash flows than even the net profit.

6. There are two methods for depicting cash from operating activities on a cash flow statement: the indirect method and the direct method.

7.The indirect method begins with net income from the income statement then adds back non cash items to arrive at a cash basis figure.

8.The direct method tracks all transactions in a period on a cash basis and uses actual cash inflows and outflows on the cash flow statement.

9.The cash flow from investing section shows the cash used to purchase fixed and long-term assets, such as plant, property and equipment (PPE), as well as any proceeds from the sale of these assets. The cash flow from financing section shows the source of a company's financing and capital as well as its servicing and payments on the loans. For example, proceeds from the issuance of stocks and bonds, dividend payments, and interest payments will be included under financing activities.

10.Cash availability allows a business the option to expand, build and launch new products, buy back shares to affirm their strong financial position, pay out dividends to reward and bolster shareholder confidence, or reduce debt to save on interest payments. 

11.It is advisable to attempt to look for companies whose share prices are lower and cash flow from operations is showing an upward trend over recent quarters. The disparity indicates that the company has increasing levels of cash flow which, if better utilized, can lead to higher share prices in near future.

12. The cash flow statement is divided into three sections—cash flow from operating activities, cash flow from investing activities, and cash flow from the financial activities. Collectively, all three sections provide a picture of where the company's cash comes from, how it is spent, and the net change in cash resulting from the firm's activities during a given accounting period.