Is operating cash real, where did investing go, how was it financed, and why did cash move

The full statement

Lesson 10.2 built the operating section. The other two come from the balance sheet changes that are not working capital. PP&E, net rose from 2,140 to 2,400 while 180 of depreciation was charged, so capital spending was $260+180=440$ (with no disposals). Long-term debt rose 100 with the current portion unchanged, so Tamarack borrowed 100; retained earnings moved by $480-80$, so dividends were 80.

Tamarack Outfitters — cash-flow statement, 2025 (CAD thousands)
Cash from operating activities                    460
Investing: purchase of PP&E                      (440)
Cash from investing activities                   (440)
Financing: new term-loan borrowing                100
           dividends paid                         (80)
Cash from financing activities                     20
Net change in cash                                 40
Cash, 1 January                                   180
Cash, 31 December                                 220

The 220 agrees with the balance sheet — the check that the statement is complete.

Four questions

This course reads every cash-flow statement with four questions, in this order.

1. Is operating cash flow positive, and is it real? Tamarack’s 460 is positive and close to its 480 of net income — a healthy sign that profit is turning into cash. “Real” means look inside: the working-capital lines show receivables up 120 and inventory up 160 in a year when revenue grew 20 %. Receivables growing at 25 % (480 → 600) against revenue at 20 % is a small collection lag; inventory growing at 29 % (560 → 720) is stock building faster than sales. Neither is alarming yet; both are the lines to watch next year. Free cash flow — operating cash flow less capital spending — is $460-440=20$: the business just about funds its own growth.

2. Where did the investing cash go? All 440 went into PP&E, and 440 is well above the 180 of depreciation. That is growth capital spending, not replacement — Tamarack is expanding, which is consistent with the revenue growth.

3. How was it financed? Mostly from operations: 460 of the 440 capex came from inside the business. The 100 of new borrowing roughly covered the 80 of dividends and the cash build. No share issue, no asset sales.

4. Why did cash move? Cash rose 40 for the right reasons — operating cash covered growth capex, and the small remainder was financed with modest new debt while dividends were maintained.

One-off versus repeatable

A cash-flow statement mixes flows the company can repeat with flows it cannot. Operating cash from selling tents is repeatable. The proceeds of selling a warehouse, a share issue, a new loan — each brings cash in exactly once. The reading discipline is to ask of any positive net change in cash: which section produced it, and will that section produce it again?

The trap case

A company shows operating cash flow of −150, investing of −60 and financing of +300 from a share issue: net change in cash +90. Cash went up; the business is burning it. Question 1 fails — operating cash is negative, and if the working-capital lines show receivables and inventory ballooning, the accrual profit (if any) is not being collected. Question 3 gives the answer: the company survived the year on its shareholders’ money, which it cannot raise every year. A rising cash balance says nothing by itself; the four questions say everything.