Cash Flow From Operating Activities (CFO)

Cash Flow From Operating Activities (CFO) refers to the amount of cash generated by a company’s regular business operations. This Cash Flow includes all cash receipts from sales of goods and services, as well as cash payments for Operating Expenses, such as salaries, rent, and utilities. CFO is an important indicator of a company’s financial health, as it shows how well a company can generate cash to cover its Operating Expenses.

Examples:

• A retail company sells merchandise worth $100,000 and receives $90,000 in cash from customers. Its cash inflow from operating activities would be $90,000.
• A service-based company incurs $50,000 in expenses for salaries and rent. If the company received $70,000 in cash from cLients, its Cash Flow from operating activities would be $20,000 ($70,000 – $50,000).

Case:

Consider a manufacturing firm that produces gadgets. In a Fiscal Year, it generates $500,000 in cash from sales and pays $300,000 in Operating Expenses. The CFO for that year would be:

$500,000 (cash inflows) – $300,000 (cash outflows) = $200,000.

This positive CFO indicates that the company is generating enough cash from its operations to support its ongoing business activities.