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Cash Flow from Operations vs Cash Flow from Investing: What's the Difference?

When it comes to cash flow, there are two different types that are important to businesses: cash flow from operations and cash flow from investing. Both types of cash flow are used to measure a company's financial health, but they are calculated differently and have different implications. Here's a closer look at the difference between cash flow from operations and cash flow from investing.

What is Cash Flow from Operations?

Cash flow from operations is a measure of a company's cash flow that is generated from its core business activities. This includes things like sales, accounts receivable, and accounts payable. Cash flow from operations is important because it shows how much cash a company has available to pay for things like expenses and debt.

What is Cash Flow from Investing?

Cash flow from investing is a measure of a company's cash flow that is generated from its investments. This includes things like the sale of assets, investments, and property. Cash flow from investing is important because it shows how much cash a company has available to reinvest in its business or to pay for things like dividends.

How are Cash Flow from Operations and Cash Flow from Investing Calculated?

Cash flow from operations is calculated by taking a company's net income and adding back things like depreciation and amortization. This number is then subtracted by things like accounts receivable and accounts payable. Cash flow from investing is calculated by taking a company's net income and subtracting things like the sale of assets and investments. This number is then added by things like property, plant, and equipment.

What are the Implications of Cash Flow from Operations and Cash Flow from Investing?

The implications of cash flow from operations and cash flow from investing can be different depending on a company's situation. For example, if a company has a lot of cash flow from operations, it may be able to reinvest that money back into its business or pay off debts. On the other hand, if a company has a lot of cash flow from investing, it may be able to pay for things like dividends or share buybacks.

Which is More Important: Cash Flow from Operations or Cash Flow from Investing?

There is no easy answer when it comes to which is more important: cash flow from operations or cash flow from investing. Each type of cash flow has its own importance and implications. Ultimately, it is up to each individual company to decide which type of cash flow is more important for its own situation.

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