The starting point for the cash flow statement is the EBIT computed in the profit and loss statement. In case the company has generated positive cash flow, the cash flow statement is a useful tool to understand how this cash flow has been generated. Stefano Caselli, Giulia Negri, in Private Equity and Venture Capital in Europe (Second Edition), 2018 18.3.3 The Cash Flow StatementĬash flow statements outline whether the business has created or absorbed cash flow. Instead it represents the cash flow available for the financers and shareholders calculated without considering raising new debt and the repayment of the old debt. This method of calculating the cash flow (free cash flow unlevered) does not contain information about the capital structure. The final cash flow includes the D&A realized during a specific period of time it does not represent real cash movement as it is a nonmonetary cost so it has to be added back to the EBIT. If the company has reduced the inventory, it means the cash flow has increased, so the value of inventory reducing has a positive effect on the company's cash flow. This value has a negative impact in that if it is greater than zero then the company has absorbed cash, for example, increasing the stock of inventory between the two comparison periods. These last two items are calculated comparing the value of the WC and the CAPEX with the current and previous period. To calculate the cash flow, the EBIT is reduced by the taxes paid, decreased by the net WC, and capital expenditure (CAPEX). As outlined in Table 22.3, the starting point for the Cash Flow Statement is the EBIT computed in the profit-and-loss statement. In case the company generated positive cash flow, the Cash Flow Statement is a useful tool to understand how this cash flow has been generated. Cash Flow Statements outline whether the business has created or absorbed cash flow.
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