Explanation :These cash inflows and outflows from operating activities are reported on two different financial statements. First, they show up on the income statement and are used to compute net income. Second, they are reported on the statement of cash flows. This statement shows how cash from three main sources (operating activities, investing activities, and financing activities) increased or decreased during the period. Operating activities are distinguished from investing or financing activities, which are functions of a company not directly related to the provision of goods and services. Instead, financing and investing activities help the company function optimally over the longer term. This means that the issuance of stock or bonds by a company are not counted as operating activities.
In a nutshell :
- Operating activities are the daily activities of a company involved in producing and selling its product, generating revenues, as well as general administrative and maintenance activities.
- Key operating activities for a company include manufacturing, sales, advertising, and marketing activities.
- Cash flows from operations are an important metric used by financial analysts and investors.
- Operating activities can be contrasted with the investing and financing activities of a firm.