Draw Topic & Writing Ideas From This Essay On Financial Management

Total cash flow for a company during a year can be from three sources, namely operating cash flow, investing cash flow and financing cash flow. Operating cash flow is related to cash flow from normal business operations, investing cash flow is related to income and expenditure related to investments and financing cash flow is from issue/ retirement of capital.
Negative net income may or may not result in negative operating cash flow. But even if the net income is negative and the operating cash flow is negative, the overall cash flow can be positive.
This could be due to either or both of investing and financing cash flows being positive enough to offset the negative quantum of operating cash flow. So when the sum of these three components result in overall positive cash flow, the net effect on cash at hand will be a positive change, i.e. the cash balance will increase at the end of the year.
Although cash flows are not found to be strongly affecting the stock price of a company and net income have a much larger effect on stock price, the stock price may increase even if a company has declared net losses.
The market may have anticipated a larger amount of net losses at the end of the year as against the declared net losses. In such a situation, the stock price may increase.
Also, in case the positive cash flow for either investing or financing activities is likely to have a positive effect on the company’s health in the long term, the stock price may increase in such a case as well.
So overall, it is seen that the change in cash position may be positive and the stock price may increase despite net income and operating cash flow being negative.