Your Cash Flow

The Statement of Cash Flows is one of the big three accounting statements. It complements the Balance Sheet and the Income Statement. 

Simply, it tracks the flow of cash that goes in and out of a company. Take Microsoft for example: 

In Q1 of 2024, Microsoft generated just under $32B from its operations: selling Xbox consoles, Azure Cloud Services to corporations, and Office 365 to new grads. It used $18.8B to repay its loans, pay out dividends to shareholders and buy back its shares. Finally, it invested $10.7B buy buying new office space and data centers, acquiring new companies, and buying stocks and bonds. In total, Microsoft increased its cash $2.3B. 

In Q1 of 2024, Microsoft’s cash went from $17.3B on 1/1/24 to $19.6B 3/31/24. The company successfully used its operations to make money, payed down debt and issued a dividend, and invested in its future. Intuitively, Microsoft would be considered a healthy company. 

You too have a Cash Flow Statement. Your daily operations produce cash, which is then used to finance your life and invest in your future. 

Imagine you’re making $20,000 after taxes and daily expenses every quarter. This would be considered your net cash from operations. The money you make with your day job minus the life expenses like groceries, your phone bill, and your gym membership. From this figure, you’d subtract out $15,000 for your mortgage and credit card bill as cash used in financing. Finally, imagine you invest $1,000 a month in the stock market, you’d subtract out a further $3,000 for your investments.

In Q1 of 2024, your cash positioned increased $2,000. You had $10,000 in cash on 1/1/24, and now you have $12,000 on 3/31/24. 

Keeping track of the flow of your cash is a vital part of ensuring you’re saving, investing, and financing at the right rate. 

Be Wise

PK