Calculating Cash Flow (makes no sense)
Hey guys,
I am having trouble grasping the idea of how cash flow from assets is calculated. One specific part, namely, why is an increase in the CASH ACCOUNT subtracted to calculate cash flow?
--> CFA = CFO - Net Fixed Assets - Change in NWC
I am talking about the change in NWC part. I understand why the other current asset accounts should be considered, however, why is the cash account also considered? Shouldn't we NOT subtract an increase in the cash account to calculate cash flow into a firm? (more like the cash account should just be ignored in the calculation since CFO calculates all income received by the firm already, including cash)
See below
I just reread your question. Ignore the cash account when calculating NWC for cash flow purposes. For liquidity ratios you obviously include it in current assets
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