What are Operating Activities? What is Cash Flow from Operating Activities?
Operating activities are the company’s day to day activities. Usually, a company selling its merchandise or selling its service. The cash that comes from Operating Activities is recorded on the company’s cash flow statement along with cash from Financing Activities and Investment Activities.
Below is Intel’s (Ticker: INTC) Statement of Cash Flows from their 2013 10-k, found here:
(click to enlarge)
Cash Flow from Operations, or Operating Activities will begin with Net Income (as found on the corresponding year’s Income Statement) and make adjustments to account for actual cash received by the company.
For example, take note in the image above that Intel’s Net Income was $9,620,000,000 in 2013, but the company’s write down (in the form of depreciation of assets) was $6,790,000,000. This depreciation is not truly a cash expense for Intel, but it must be taken out of Net Income per accounting standards. So, $6,790,000,000 is added to the $9,620,000,000. Negative numbers are usually in parentheses, like the (900,000,000) in deferred taxes that Intel will have to pay.
All of the adjustments add (and subtract) up to give investors a “Net Cash Provided by Operating Activities” line, this is the total amount of cash that the routine, day to day, business generated for Intel.
Generally, analysts want to see the money generated by Operating Activities as the company’s primary source of cash generation. Operating activities should be the company’s “bread and butter”, and if they are unable to generate sufficient cash from operating activities, investors should take caution.
Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports, Defines “Cash From Operations” as:
“Cash From Operations reports the flow of money into and out of the business from the making and selling of products.”