 Cash flows are very important for any business concern in a contemporary world because every firm on every day has to pay cash to the external community and the firm receives cash from the external community. This cash line serves as a bloodline for the concern. Cash flows are computed from the financial statements. So these are the extractions GTP financial statements. And we derive them from balance sheet and income statement. Cash flows can be defined with two perspectives. One is the accounting perspective. For an accountant cash flows are the cash and cash equivalents. Now cash equivalents are those financial instruments that can be treated as cash. Or we can say that cash equivalents are the highly liquid securities that can be converted into cash without losing any significant value. For an accountant this shorter period of liquidity is the 90 days period. So we can say that any financial instrument that can be converted into cash within a period of 90 days can be termed as a cash equivalent. But for a financial manager the definition of cash flow is somehow different. For a financial manager cash flows are the financial cash flows. So there is a difference between accounting cash flows and the financial cash flows. Accounting cash flows as I have said that are the cash flows derived by an accountant from the financial statements. But financial cash flows are the value derived by a firm using its assets. This means that these are the cash flows associated with the firm's assets. There's a difference between cash flows and networking capital. As I have earlier given an example of sale of inventory for cash. So when inventory is sold cash is there. This means that an inflow of cash is there in the firm. But there is no change in the networking capital as the inflow of cash is set off with the outflow of inventory. So current assets remain the same. This means that networking capital remains the same. But for an analyst better is to determine cash flows for the financial decision making. When we talk about firm value remember that firm value is equal to the amount of cash generated by firm over a period of time. This means that higher the cash creation higher is a firm value. For a financial analyst the value of firm is equal to the value derived by using an asset. This value will be termed as cash inflows. This means that the firm receives the cash and uses the assets from the operations. These are called as operating cash flows. This is the cash inflows. Now the firm acquired its assets with the help of equity and debt. And the equity and debt was also used in its operations. So these two groups also have to pay some cash for the firm. So the value of the firm will be created when the assets received from the cash will be equal to the cash paid to the bondholders. Or debt holders or to the equity holders. So we can say that the firm will generate cash flows from the operations while using its assets. That cash flows are known as operating cash flows. Now how to determine operating cash flows? Operating cash flows can be determined by adding non-cash expenses and deducting current taxes from earnings before interest. And on the screen you can see that the operating cash flows for this particular firm are $238 million. So these are the operating cash flows that a firm has generated while using its assets in the operations. The second type of cash flows are the investing cash flows. These investing cash flows are the net cash flows related with the acquisition and disposal of the fixed assets on the screen. You can see that there is $198 million in acquisition of fixed assets and $25 million is the sale proceeds. So net capital spending is $173 million. Besides this spending, the firm has also invested in its networking capital and amount of $23 million. Now we can say that investing cash flows for this particular firm are $196 million. These are the second types of cash flows. Now third one is the cash flows to the investors are to the fund providers. There are two types of fund providers. The first one are the external and the second are the internal. External are generally known as creditors and internal are known as stockholders. On the screen you can see that cash flow paid to the creditors is $36 million. This is the net of interest payment and retirement of debt which is termed as debt service and this debt service is $122 million. So $122 million has been paid while $86 million has been raised through the sale of debt and net cash flow from this section is $36 million. And this $36 million is the additional amount paid to the creditors. And finally we have cash flow paid to the stockholders and this is the net amount of $6 million. And this $6 million is the result of dividend payment and repurchase of stock which is in total an amount of $49 million. Now the firm has paid $49 million to its shareholders while from these shareholders the firm has raised a stock issue of $43 million. So in excess a $6 million has been paid to the stockholders. Now we can say that cash paid to creditors by $36 million and cash paid to stockholders by $6 million. This total amount is $42 billion the firm has paid to its fund providers. Now on the screen you can see the firm value creation. There are two types of cash flows. The first category is cash flow of the firm. Now the second is cash flow to the investor in the firm. In the first class we have operating cash flows of $238. These are the cash flows a firm has generated from its operations using the assets. From this $238 million the firm has paid an amount of $173 million in purchasing investment and $23 million in investing in the networking capital. So there is a net surplus of $42 million. So this $42 million is the value creation by a firm using its operations. From this $42 million the firm has made a payment of $36 million to the debt holder and $6 million to the equity. Now we see that there is an equation. This means that cash inflows are equal to the cash outflows. If this is the same then we call it as a value creation. The firm has created a value for its shareholders. Now there are certain observations when we talk about cash flows. The first is about operating cash flows. Kindly note that to determine operating cash flows we use data from income statement and balance it. Primarily from income statement we add non-cash items to the earnings before interest and tax and we deduct tax payment from earnings before interest and tax. And the resulting figure is operating cash flows. Generally operating cash flows if positive are considered a good sign for the firm which means that firm has managed its operations profitably. And the surplus cash would be available to invest in the firm's assets and networking capital. But if there is a negative operating cash flows this means that firm has unable to generate enough amount of cash from its operations. Then we have total cash flows. Generally total cash flows are negative for the growing firms because growing firms always go for investing their positive operating cash flows into the assets. And networking capital. Dear students kindly note that there is difference between net income and cash flows. Both cannot be equal every time for every transaction. For example a sale on credit may create a profit for the firm. So there is an income for the firm but as the sale is on credit basis so there is no cash flow. So a firm may be profitable but may run shortage of cash for financial analysis. It is better to use cash flows rather than income. Finally we have free cash flows. These are the cash flows a firm is free to distribute among its creditors and its equity holders provided. The firm has acquired the required amount of fixed assets and investment in networking capital. This is then called as free cash flows because in conclusion. These cash flows are freely available at the discretion of the firm to be paid to the fund providers.