- Operating cash flow – answers the question “does my business generate sufficient cash flow to maintain and grow operations?” Measures cash flow after all direct business activities (COGS/COS) to pay administrative costs, save, invest and expand. If net income is less than cash flow from operations, you will have to find financing to pay non-operational costs. This metric concentrates on cash inflows and outflows related to a company’s main business activities and does not include such things as investments and capital expenditures.
- Free cash flow – answers the question “What cash do I have to invest in the business?” Every business if it is to grow must invest in its financial stability, future and people. This metric measures the amount of cash left after I pay all operating expenditures and capital expenditures.
Free cash flow = operating cash flow – capital expenditures
- Cash flow from financing activities – How much cash is used to pay debt and investors and what cash came in to pay debt? This provides insight into how well a company’s capital structure is managed or it’s financial strength. A positive net cash flow means that the business has borrowed money or owners contributed capital and a negative cash flow means that either debt is being paid or owners are withdrawing capital.
