So far this series we’ve looked at the income statement and balance sheet for Apple, Inc. The last financial statement I’m going to discuss is the cash flow statement. Cash flow is the difference in a company’s cash balance during a particular time period.
Examining the cash flow statement is the most important way to gauge the health of a company. The cash flow statement shows you where the cash is coming from and where it’s going.
The cash flow statement breaks down your cash transactions into three separate categories: Operating, Investing, and Financing Activities.
Cash Flow From Operating Activities
The easiest way to explain cash flow from investing activities is to show you how it’s calculated. Here are the steps to calculate it:
1) Start with net income
2) Add depreciation
3) Add deferred income (The cash received up front for a sale that hasn’t billed yet)
4) Subtract the increase in accounts receivables and inventory (If receivables and inventory go up, cash goes down and vice versa)
5) Add the increase in accounts payable (If payables increase, so does cash balance)
This calculation provides you with the cash flow from operating activities. If you've got questions feel free to ask me in the comment section below.
Cash Flow From Investing Activities
The capital expenditures and investments that Apple made are taken into account under cash flow from operating activities. Capital expenditures are payments for property, plant, and equipment. Investments include the purchase and sale of marketable securities.
*After closer examination, it appears that Apple has negative cash flow this period since they invested a significant amount of cash in marketable securities. According to their annual report on SEC.gov, they purchased $102B of marketable securities and received $70B in proceeds from sales, resulting in a net difference of $32B in negative cash flow for activities associated with investing. This provides me with some comfort as an investor. I’d much rather this be the reason for negative cash flow vs. not collecting receivables or moving inventory.
Cash Flow From Financing Activities
Financing activities are the payment of dividends, sale or purchase of company stock, and borrowing activity. Apple issued $831M shares of its own stock and paid a $520M finance charge in 2011. They don’t pay a dividend to shareholders.
As you can tell from above, Apple finished the year with negative cash flow of $1.446B. According to the balance sheet, their cash balance dropped from $11.261B in 2010 to $9.815B in 2011. After taking a closer look, we realized that Apple invested a significant amount of cash in marketable securities which resulted in negative cash flow for the year. Despite having a negative cash flow, Apple still finished the year with a nearly $10B cash balance.
*If you’d like to view the actual financial statements of a publicly owned company like Apple check out SEC.gov. Just enter in the company name or ticker symbol and click the report you’d like to view (the annual report is filed as 10-K).
Examining the cash flow statement is the most important way to gauge the health of a company. The cash flow statement shows you where the cash is coming from and where it’s going.
The cash flow statement breaks down your cash transactions into three separate categories: Operating, Investing, and Financing Activities.
Cash Flow From Operating Activities
The easiest way to explain cash flow from investing activities is to show you how it’s calculated. Here are the steps to calculate it:
1) Start with net income
2) Add depreciation
3) Add deferred income (The cash received up front for a sale that hasn’t billed yet)
4) Subtract the increase in accounts receivables and inventory (If receivables and inventory go up, cash goes down and vice versa)
5) Add the increase in accounts payable (If payables increase, so does cash balance)
This calculation provides you with the cash flow from operating activities. If you've got questions feel free to ask me in the comment section below.
Cash Flow From Investing Activities
The capital expenditures and investments that Apple made are taken into account under cash flow from operating activities. Capital expenditures are payments for property, plant, and equipment. Investments include the purchase and sale of marketable securities.
*After closer examination, it appears that Apple has negative cash flow this period since they invested a significant amount of cash in marketable securities. According to their annual report on SEC.gov, they purchased $102B of marketable securities and received $70B in proceeds from sales, resulting in a net difference of $32B in negative cash flow for activities associated with investing. This provides me with some comfort as an investor. I’d much rather this be the reason for negative cash flow vs. not collecting receivables or moving inventory.
Cash Flow From Financing Activities
Financing activities are the payment of dividends, sale or purchase of company stock, and borrowing activity. Apple issued $831M shares of its own stock and paid a $520M finance charge in 2011. They don’t pay a dividend to shareholders.
As you can tell from above, Apple finished the year with negative cash flow of $1.446B. According to the balance sheet, their cash balance dropped from $11.261B in 2010 to $9.815B in 2011. After taking a closer look, we realized that Apple invested a significant amount of cash in marketable securities which resulted in negative cash flow for the year. Despite having a negative cash flow, Apple still finished the year with a nearly $10B cash balance.
*If you’d like to view the actual financial statements of a publicly owned company like Apple check out SEC.gov. Just enter in the company name or ticker symbol and click the report you’d like to view (the annual report is filed as 10-K).
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