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Cash flow Analysis - Overview, Examples, What is Cash Flow Statement Analysis? - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
of Wallstreetmojo friends today we are
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going to learn a tutorial on cash flow
analysis we are going to take some
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examples of Google boxing and Amazon and Colgate so let's get into the
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nitty-gritty of the same see is the first
thing cash flow analysis this is a
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company like you know the iron mount
Corp and bronze metal Corp both
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hypothetical companies had identified a
cash position let's say at the beginning
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and at the end of 2007 each company also
reported let's say a net income of
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$2,25000 dollars for 1207 now which company
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is displaying elements of the cash flow
stress what factors cause you to reach
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this conclusion what is the importance
of doing the cash flow analysis let me
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show you something as you can see over
here in the operating activities there
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is a gain on sale of equipment the net
cash flow from operating data are
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investing data at a sale of equipments
proceed from the long term borrowing and
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this is your cash flow statement so cash
flow analysis is one of the best method
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through which an investor can understand
how much net cash inflow or company is
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generating in this tutorial will be
looking at so many other details
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regarding this so let's get into the
first what exactly is the cash flow see
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cash flow analysis is one of the most
important analysis you need to do so if
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you want to know about a company's cash
flow and cash inflow and cash outflow
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then in that particular scenario
you need to pay a ten special you need
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to pay special attention to this two
phrases cash inflow and cash outflow in
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cash flow statement this two phrases
matter the most let's take an example
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understand this let's say there is a
company ABC and has just started a
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business and earn revenue and it close
enough to let's say $100 okay that's the
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revenue which they are in incorrect so
everything is in in dollars just consider
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that 100 and as for the record their expenses are now close enough to
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60 so this is your revenue this is expenses and in general terms you would
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say the company A ABC has made close
enough to 100-60 that is a
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40 profit as a partner however in
this case of the company ABC it is seen
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that they have a revenue close enough to
100 in the year but they have
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collected only 80 in that particular
scenario the
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in this case the expenses they have paid
only is 50 so and the remaining for the
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next year so if we compute the net cash
flow this year it could be 80 - 50
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that is going to be 30 so even if the
company ABC has made a profit of 40 this
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year the net cash flow is just 30 so in
cash flow analysis we will only include
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the cash related to the operations
rather than rather we will also include
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the expenses and income from the
investing in financing activity let's do
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some cash flow analysis see cash flow
analysis are divided into three parts
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the first in I'll just write over here
cash flow analysis the first the
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cash flow from the operations then we
have cash flow from investing activities
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and then finally we have cash flow from
the financing activities we will discuss
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this one by one as you can see the cash
flow from the operations the inflows are
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generalization of the funds in the
normal operations of the business the
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outflows are again the normal operations
that happens for the same the expenses
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that have been incurred then you have
the investing activities that have
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plants and equipments that is sale of
plant and equipment that is your cash
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inflow the long-term investments that is
the liquidation of the same so that you
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receive the amount in your bank that is
your inflow and there is outflow that is
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purchase of the plant and equipments
investments in long term investments so
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all are that your outflow in case of the
cash flow for the finance you have debt
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issuance common stock preferred stock
and other securities in case of the cash
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outflow there is a retirement of debt
commitment stock and preferred stock and
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there is a payment of the cash dividend
let's understand each of them on a very
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quick basis there is a cash from cash
flow from the operation in this scenario
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you know the cash flow from the
operation it means taking into account
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cash flow generated from the normal
business operation and it's
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corresponding to the cash outflow there
are basically two methods to calculate
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this for cash flow from the operation
one is the direct method another is the
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indirect method to calculate this the
indirect method is used in most of the
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cases this method that we are talking
about it is used in most of the cases
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and here we'll look at only the indirect
method for computing the cash flow from
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the operations see for the computation
of the cash flow operation before you
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start thinking about the cash flow
statement analysis you know you have a
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look at you have to look at the income
statement and you have to start with the
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net income that is the first thing you
have to start with the
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net income then you have to you need to
add back any you know non-cash
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expenditure like depreciation
amortization and and so on and so forth
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I mean this is the same with any sort of
like sale of assets if there is any loss
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on the sale of assets we need to add
them back if there is an again of sale
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of asset we need to deduct and then we
need to take into account any changes
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that is the plus or minus change in the
you know you can say the non current
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assets and finally we need to include
changes in the current assets and
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current liabilities let's see an example
of Colgate's cash flow statement as you
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can see this is the Colgate Palmolive
cash flow statement the net income then
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the adding back all the processors and
then there is a change in the working
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capital or basically current liabilities
and current assets which gives them the
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net cash flow from the operation as in
the recent year is 2949 and that is
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in terms of millions so even though
colgates net income is 1548
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in 2015 you know it's basically as
you can see over here from from
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operation which seems to be in line with
the past and if you look close in 2015
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the cash flow from the operation there
is a charge of vanilla accounting change
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that as contributed to close enough to
1084 million in 2015 and
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this was absent in 2013 in 2014 and 2013 from the cash flow if you
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remove the charge of the Colgate's cash
flow from the operation will not look
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too exciting now let's see the cash
flow from the investment investment
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activity see other than the operation
the company also invest in assets which
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can provide them up with a greater
returns we need to find out how many
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cash lists or you know activities are
done during the period so that we can
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take them into account well as certain
in the net cash flows see cash inflow
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from the investing activity would
include activities like purchasing of
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the you know long term assets long term
investments or securities are selling
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them basically also providing taking
loans so though there are nothing there
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is nothing much to be talked about here
because here there are only two things
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that to be taken into account first we
need to add back all the losses while
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selling any long term assets or
marketable security and this losses
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should be added back as there is no such
outflow for the losses second is that in
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the particular case we need to deduct the
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profit while selling any long-term
assets or marketable security and this
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profit should be deducted because there
is no cash inflow for the profits of the
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company that has been made let me show
you colgates cash flow from the
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investment example now this is the case
of the cash flow statement from the
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investment investment example see colgate cash flow analysis from the
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investment activity is close enough to
685 in negative in 2015 855 negative in
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20 you know in 2014 and Colgate school
capital expenditure was 691 million in
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2015 as compared to a 757 million in
2014 so in 2015 Colgate Colgate got
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proceeds of close enough to 599 million
from the sale of the marketable security
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investments additionally Colgate
received you know 221 million from the
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proceeds from the sale of the South
Pacific laundry detergent business let's
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now understand the cash flow from the
financing activities seen case of the
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cash flow from the financing activity
first there is you know any buyback of
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issuing you know of securities and it
will come under the financing activity
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in case of cash flow analysis borrowing
or basically you know repaying of any
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short term or long term is showing notes
bonds and will also be included under
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the financing activity we also need to
include any dividend that has been paid
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if any and how we need to make sure that
you know we don't include any income or
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any any accounts payable or accrued
liability because they would be taken
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into account in net cash flow from the
operating activities right let me show
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you the example for the Colgate net cash flow from the financial
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activity as you can see this is your
Colgate from the financing activities
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the Colgate financing activity you know
it is basically having a really
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consistent position in all the 3 years Colgate principal repayment on
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debt was close enough to or 19 you know
in the -9181 million in 2015
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and its issuances stood at 9602 in basically millions and
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Colgate has a stable dividend policy
they paid dividend close enough to 1493
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million in 2015 and 1446 in 2014 as a part of the
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share repurchase program Colgate's buy
back shares at regular intervals so in
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2015 the Colgate his shares of 1551 million worth of
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shares so now let's see I'll show you
some of the example of iron Mount was
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versus the bronze metal case see let's
go back to the earlier cash flow
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statement that we had in a very
inception statement that we had studied
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in the cash flow example we started with
the iron mount Corp and the bronze metal
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Corp had an identical cash flow position
at the beginning and at the end of 2007
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each company reported a net income of
2,25,000 as we had discussed let
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me show you again the same so we here
the Iron Mountain bronze metal both
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companies have the same end of the year
cash or a cash of 365 900 in both the
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scenario additionally changes in the
cash during the year is the same that
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has 3,15,900 which companies displaying
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elements of the cash flow stress so we
note that in the cash flow from the
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operation is negative for basically the
Iron Mountain okay that is the operating
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21450 that is in the negative case
and the gain on the sale of the
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equipment is deducted and as this is not
basically an operating cash flow the
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IronMount sale of equipment is close
enough to 307350 and which
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contributes to the increase in the cash
so on the other hand when we look at the
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bronze metal we know that its cash flow
from the operation is are close enough
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to strong 3,74,250 and they are and seems
to be really doing good in the business
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they are not railing on relying on one-time sale of equipment to generate
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cash flows so with this we conclude that
the iron mount is showing signs of
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stress due to the low core operating
income and its reliance on the other
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one-time items to generate cash flow let
me show you that let me show you the
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cash flow enhance analysis example of
Google that is alphabet as you can see
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over here in case of cash flow from the
operations of Google basically this is
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blue is for operations orange is for
investing and this red or pink you can
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say for financing activity cash flow
from the operations Google's cash flow
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from operations are generated from
basically you know the advertising in
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revenue so by by Google properties and
Google Network members properties
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additionally Google generates cash
through the share of you can say you
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know share of apps and so on and so forth basically
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additionally you know they are also into
the hardware products licensing
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arrangement service fee is received from
the Google cloud offerings so Google
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cash flow from the operations shows an
increasing trend primarily due to
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increase in the net income Google's net
income was close enough to you know
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14.14 in billion in 2014 this was in case of the
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2014 case 2015 case was close enough to
16.35 billion and
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19.48 billion in 2016 so cash flow from the investing
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activity if you see for Google who was
investing activity primarily include the
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purchase of the marketable securities
and cash collaterals paid related to the
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security lending spend zone related to
the acquisitions if you see the cash
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flow from the financing activities cash
flow from financing activities driven by
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the proceeds from the issuance of the
debt and debt repayments in repurchases
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the capital stocks and net payments
related to stock-based of wards that is
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the esop's you can see and Google's
cash flow from the financing activities
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are decreasing each year due to the
increasing in this share of the
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repurchase so in 2016
Google's repurchase shares worth of
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close enough to 3.304 billion as compared to
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$2.2422 around billions in 2015 let me show you this graph again
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ins so this is the graph of the Google's
alphabet I hope you have got a great
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idea regarding the Google let me show
you the same graph for Amazon and give
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you some insight regarding the same now
this is the graph for of Amazon as you
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can see over here in case of the cash
flow from the operations the amazon's
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cash flow operation is derived from the
cash receipt from the consumer seller
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developer enterprise and content related
customers so this is you know basically
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we in a note that the cash flow from the
operation has been increasing steadily
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you know as you can see and this is
primarily due to increase in the net
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income amazon's net income was close
enough to 241 million in 2014
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596 million in close 2015 and 2.2371 million in 2016 let's see the
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cash flow from the investing activities ease in case of the investment
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cash flow from the investment from of
Amazon comes from capital expenditures
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including leasehold improvements
internal use of software's website
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development cost and so on and so forth
so the cash flow from the investing was
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around 9.9 billion in the 2016 case of of Amazon as compared to
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6.5 in 2015 if you see the cash flow from the financing activities
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it is moving down Amazon cash flow from
the financing activities basically comes
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from the outflows resulting from the
principle tree worm it has a long-term
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debt obligations related to capital in
finance and Leasing and it was 2.9
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billion in 2016 and 3.76 billion in 2015
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so now let's quickly understand the
final summary of the cash flow analysis
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the net income the net income is in line
with the net income statement you need
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to adjust for any depreciation amortization okay and then do you have
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to adjust for provision for losses on
accounts of account receivable gain or
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loss is on sale of facility and then you
have to increase or decrease in the
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trade receivables that is the changes in
the accounts receivable and changes in
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inventories in creditors and Cash generated from Operations then you have the cash
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flow from the investing activity which
is punches of the fixed assets proceeds
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from the sale of fixed assets and the
net cash use in investing activities
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that gives you finally your financing
activities that is cash flow from the
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financing activities if the see this proceeds
from the issuance of the common stock
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that gives that is the first part of
financing activities then you have from
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the long-term debt you end if you pay
any dividend and finally is net cash
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that is used in the financing activities
that is a summary of the process
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preceding items in the section so let's
make the final conclusion on the cash
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flow statement after studying this much
on learning this much in case of the
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cash flow analysis if you want to
understand about the company and its
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financial affairs you would need to look
at the three statements and all the
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ratios you have only cash flow analysis
would not only be give you a right
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picture about the company if you look at
for the net cash inflow but also make
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sure that you you have checked how
profitable the company is over the last
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year's so also the also the cash flow
analysis is not that easy thing you know
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you can say that that easy thing to
compute if you want to compute cash flow
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analysis you need to understand more
than the basic level of you know finance
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and you also need to understand the
financial terms how they are captured in
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the in the in the statements and how
they reflects in the income statements
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and thus if you want to do cash flow
analysis first know how to see the
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income statement and understand what to
include and what to explode in the cash
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flow statement thank you everyone
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