Cash from Operating Activities

Operating activities are the primary revenue-generating activities of a business — the main things it does to earn money. For a garment manufacturer, this means buying raw material, paying for manufacturing, and selling clothes. For a bank, it means taking deposits and giving loans. The key point is that operating activities are not investing activities (buying/selling fixed assets) and not financing activities (raising or repaying loans, issuing shares).

The cash generated from operations is a critical measure of a company's internal solvency. It shows whether the business can maintain its operations, pay dividends, make new investments, and repay loans without needing outside financing. This is why analysts and creditors watch operating cash flow so closely.

Cash flows from operating activities generally result from the same transactions that determine net profit or loss. They include:

Cash Inflows from Operating Activities

• Cash receipts from sale of goods and rendering of services
• Cash receipts from royalties, fees, commissions, and other revenues

Cash Outflows from Operating Activities

• Cash payments to suppliers for goods and services
• Cash payments to and on behalf of employees (salaries, wages, PF, etc.)
• Cash payments to an insurance enterprise for premiums, claims, annuities, and other policy benefits
• Cash payments of income taxes (unless they can be specifically identified with financing or investing activities)

The net position (total inflows minus total outflows) is shown for operating cash flows. …