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Operating Cash Flows3:20 with Michael Watson
The Operating Cash Flows section of the Cash Flow Statement
The first section is the operating cash flow section, 0:00 usually this starts with net income, and then reconciles 0:03 different line items to arrive at cash provided by operating activities. 0:07 If you remember earlier in the course, we talked about a few items that show up on 0:12 the P and L as either expenses or revenue for a given period. 0:16 But they aren't actually paid for or collected in that period. 0:20 That is an intrinsic aspect of accrual accounting, and the cash flow statement, 0:24 among other things, helps communicate some of those timing differences between 0:29 revenue and expense recognition and cash inflows and outflows. 0:33 Let's take a look at the cash flow statement for Carnival Cruises. 0:38 In their operating activities section, we can see it starts with net income. 0:43 Then, a sub-section titled 0:48 adjustments to reconcile net income to net cash provided by operating activities. 0:51 The first line in that sub-section is depreciation and amortization. 0:56 We talked about depreciation in the previous stages, but remember, 1:02 it's an expense to account for the reduction in value of an asset. 1:06 So, there's not actually cash going out the door with a depreciation expense. 1:10 So, here on the cash flow statement, 1:15 we add back the depreciation expense to net income. 1:17 It's a quote source of cash, which we are adding back to our net income. 1:21 So you see a positive number there for 2018. 1:26 So after all the line items in this sub-section, 1:29 we arrive at a total figure of 5 billion, 186 million. 1:32 Then, the next sub-section in the statement is 1:37 changes in operating assets and liabilities. 1:40 Sometimes this will be called changes in working capital. 1:43 Let's look at the first line, receivables. 1:47 This is the money people owe us related to revenue that we haven't collected yet. 1:49 So, when there is a negative number here, 1:54 that means the amount of money people owe us as an account receivable has gone up. 1:57 When a current asset goes up from period to period, 2:03 that's a use of cash, it hasn't been turned into cash yet. 2:06 When it goes down, it will be a source of cash, same for inventories, 2:11 think about it. 2:15 As the amount of inventories on your balance sheet increases, 2:16 you are using cash to build up that inventory. 2:20 When it declines, you are using that inventory to convert it into cash. 2:23 We're starting to get into a little more advanced accounting topics. 2:29 So, I don't wanna get too far ahead of ourselves. 2:33 The main point to realize from this is that 2:35 whatever it says on your net income or 2:39 net profit line doesn't mean we generated that amount of cash over this period. 2:41 They are often quite different. 2:45 Looking at Carnival's operating cash flow section, we can see that for 2:48 the fiscal year 2018 that ends in November, 2:51 the business had a net profit of $3,152,000,000. 2:55 But Carnival actually generated 5 billion, 3:01 549 million in operating cash flow. 3:05 So, what do they do with that $5.5 billion in cash? 3:09 Well, that's a great question, and we'll look at the next sections of the cash flow 3:13 statement in our next video to answer it. 3:17
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