My CFA learning Part 1

Maimuna Onakoya Written by Maimuna Onakoya · 1 min read >

I have earnt that accounting is the act of recording the transaction that is carried out in a business dealing while corporate accounting is the process that organizations follow to record their business dealings and balance their books on what is received and what is paid ou.

There are four statements of accounts listed below

  1. Statement of income statement – this details the profitability of a company.
  2. Statement of financial position – this is also known as the balance sheet.
  3. Statement of cash flow – this details the liquidity position of a company
  4. Statement of change in equity – equity position
  5. Notes to account – financial notes.

The formula for calculating account transactions is stated below

Asset = Liability + Owner’s Equity.

Assets are classified into current and noncurrent asset

Types of cash flow are stated below

  1. Operating Cash Flow: Operating Cash Flow is the amount of cash a company generates from conducting business operations within a specific period of time. The operation is an ongoing activity – what the company sells on a regular basis. This can also be called “Cash Flow from Operating Activities” CFO.  Cash flow from operating activities does not include long-term capital expenditures or investment revenue and expense. CFO focuses only on the core business and is also known as operating cash flow (OCF) or net cash from operating activities.
  2. Financing Cash Flow: also known as Cash flow from financing activities (CFF) is a section of a company’s cash flow statement, which shows the net flows of cash that are used to fund the company. Financing activities include transactions involving debt, equity, and dividends.

Cash flow from financing activities provides investors with insight into a company’s financial strength and how well a company’s capital structure is managed. The following is how you calculate CFF

  • Add cash inflows from the issuing of debt or equity.
  • Add all cash outflows from stock repurchases, dividend payments, and repayment of debt.
  • Subtract the cash outflows from the inflows to arrive at the cash flow from financing activities for the period.
  • Investing cash flow: also known as Cash flow from investing activities (CFI) is one of the sections on the cash flow statement that reports how much cash has been generated or spent from various investment-related activities in a specific period. Investing activities include purchases of physical assets, investments in securities, or the sale of securities or assets.

Negative cash flow is often indicative of a company’s poor performance. However, negative cash flow from investing activities might be due to significant amounts of cash being invested in the long-term health of the company, such as research and development.  The balance sheet provides an overview of a company’s assets, liabilities, and owner’s equity as of a specific date

What is Financial Statement Analysis

Financial Statement Analysis is the process of reviewing and analyzing a company’s financial statements to make better economic decisions to earn income in the future. These statements include the income statement, balance sheet, statement of cash flows, notes to accounts, and a statement of changes in equity

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