Cash Flow — Line by Line
Turning profit into real cash.
The cash flow statement is the professional's truth-check on profit. It has three sections, and it reconciles the accounting profit back to the actual cash the business generated. Operating activities Most reports use the indirect method: start with net profit, then add back non-cash charges (like depreciation) and adjust for changes in working capital (receivables, inventory, payables). The result is cash actually generated by operations, the single most important line in the whole statement. Net profit (start) The accounting profit being reconciled to cash. + Depreciation & amortisation Added back, it reduced profit but used no cash. ± Working capital changes Rising receivables/inventory consume cash; rising payables release it. = Operating cash flow Cash from the core business. Want it positive and tracking net profit over time. Investing and financing Investing activities Cash spent on assets (capex) or received from selling them. Heavy capex is normal for growing firms. Financing activities Cash from/to lenders and owners, new loans, repayments, share issues, dividends paid. Free cash flow Free cash flow = Operating cash flow − capital expenditure Operating cash flow Rs 300, capex Rs 120. Free cash flow = Rs 180. The cash left after keeping the business running, available for dividends, debt repayment, or growth. The classic red flag: net profit rising for years while operating cash flow stays flat or falls. It often means profit is being booked but not collected. Dig into receivables and revenue policy.
Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: The Annual Report.