Sunday, July 15, 2012 6:25:06 PM
Attn: Trustunits
Umm are you referring cash flow or net income? I don't think cash received from sales of shares would affect the Net income amount. Stock issued for cash will show up on the statement of cash flow.
Net income = Sales - Expenses (shares issues are not accounted for here).
Statement of Cash Flow =
Net income(loss)
+- adjustments from operations (adding back deprec. exp.)
+- adjustments from investing (buying/selling land building etc)
+- adjustments from Financing(issuing/buying stock etc)
Whether or not Net Income or Cash flow is most important depends on who you talk to. Finance guys prefer cash flow, accounting and the investors care about earnings (net income).
Both Cash flow and Net income are good predictors of value of the firm. Just in different ways. We want to see Net income as it shows the firm is capable of operating a business and making money from it. Technically your overall cash flow can look good but it could be from issuing shares or selling land and buildings for cash. Its not uncommon to see major companies not show positive cashflow from operations but positive overall cash flow from all three areas (operations, investing and financing) combined. Its also common to see firm issue or buy shares and increase or decrease cash flow accordingly.
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