Chapter 15 · Cash Flow
The three sections, and why only one is repeatable
Operating, investing and financing. A company can show cash from all three; only one of them can continue indefinitely.
Profit involves judgement about *when* to recognise revenue and costs. Cash does not — money either moved or it did not. That is why this is the statement to read first.
Where the cash went
| Section | What it captures | Sustainable? |
|---|---|---|
| Operating | Cash from actually running the business | Yes — this is the engine |
| Investing | Buying and selling long-term assets | No — you run out of things to sell |
| Financing | Raising or repaying debt, issuing shares, paying dividends | No — lenders stop lending |
Free cash flow
Free cash flow = Operating cash flow − Capital expenditure.
It is what is left after paying to maintain and grow the asset base — the cash genuinely available for dividends, debt repayment or reinvestment. For a hydropower company mid-construction it will be deeply negative, and that is normal. For a mature bank it should be reliably positive.
Worked example
Operating cash flow Rs 1,20,00,000; capital expenditure Rs 60,00,000; debt repaid Rs 20,00,000; dividend paid Rs 10,00,000.
- Free cash flow = 1,20,00,000 − 60,00,000 = Rs 60,00,000
- Financing outflow = 20,00,000 + 10,00,000 = Rs 30,00,000
- The company covered its investment and its financing from operations, with Rs 30,00,000 to spare. That is a healthy shape.
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