Cash from Operations

Cash from operations refers to the amount of cash generated by a company's regular business activities. It provides insight into the company's ability to generate cash flow from its core operations without relying on external sources of funding.

The calculation of cash from operations involves adjustments to the net profit figure, taking into account changes in current assets and liabilities. There are several components that can contribute to cash from operations, and the most commonly used formula is:

Cash from Operations = Net Profit + Decrease in Current Assets - Increase in Current Liabilities

Net Profit

Net profit is the amount of revenue left after deducting all expenses, taxes, and interest. It represents the profitability of a company's operations. It is calculated by subtracting the company's total expenses from its total revenue. Net profit is an important indicator of a company's financial performance.

Decrease in Current Assets

Current assets are resources that are expected to be converted into cash within one year. Examples of current assets include cash, accounts receivable, and inventory. A decrease in current assets means that the company has used up or sold some of these assets, resulting in a cash inflow.

Increase in Current Liabilities

Current liabilities are obligations that are due within one year. Examples of current liabilities include accounts payable, accrued expenses, and short-term debt. An increase in current liabilities means that the company has incurred additional obligations, resulting in a cash outflow.

Bonus Paid in the Form of Fully Paid Bonus Shares

Bonus shares are additional shares given to existing shareholders of a company without any cost. It is a way for a company to reward its shareholders while conserving cash. When bonus shares are issued, the company's net profit remains the same, but the number of shares outstanding increases.

In the context of cash from operations, bonus paid in the form of fully paid bonus shares does not directly contribute to cash from operations. This is because it does not involve any cash outflow or inflow. However, it can indirectly impact cash from operations by affecting the number of shares outstanding and the subsequent calculation of earnings per share.

Conclusion

In conclusion, cash from operations is calculated by adding the net profit to the decrease in current assets and subtracting the increase in current liabilities. While bonus paid in the form of fully paid bonus shares does not directly impact cash from operations, it can affect the calculation of earnings per share.