usiness activity includes any activity that a business undertakes with the primary objective of making a profit. It is a general term that covers all the economic activities that a company undertakes during the course of doing business. Business activities, including operating, investing and financing activities, are ongoing and focused on creating value for shareholders.
There are three main types of business activities: operating, investing and financing. The creation and use of cash flows by each of these activities is liste in the statement of cash flows. The purpose of the statement of cash flows is to reconcile net income on an accrual basis with cash flows.
The net income draw comes from the bottom of the income statement, and the cash impact of the balance sheet changes are identified to make adjustments to the actual cash inflows and outflows.
Deductions from non-cash items previously derived from net income are added back to determine cash flows; The addition of a non-cash item previously added to net income is deducted to determine cash flow. The result is a report that provides investors with a cash summary of business activities within the company, broken down by specific types of activity.
Types of Main Business Activities
Operating Business activities
The first part of the cash flow statement is cash flow from operating activities. This activity includes many items from the current income statement and balance sheet sections. The cash flow statement adds back certain non-cash items such as depreciation and amortization. Then changes to balance sheet line items, such as accounts receivable and payable, add or subtract based on their previous impact on net income.
This line item affects net income on the income statement but does not result in the movement of money into or out of the company. If the cash flow from operating Manufacturing Directors Email Lists business activities is negative, it means that the company must finance its operating activities either through investing activities or financing activities. Regular negative operating cash flow is not common outside nonprofits.
Investing Business Activities
Investing activities are in the second section of the cash flow statement. These are business activities whose capitalization is for more than one year. Likewise with the sale of real estate which includes a source of cash. This “capital expenditure” line item is an investment activity and can be part of this cash flow statement.
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Financing Business Activities
The final section of the cash flow statement includes financing activities. This includes initial public offerings, secondary offerings, and debt financing. This section also lists the amount of cash paid out for dividends, share repurchases, and.
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