0:27

So the core concepts of the cash flow statement is

to identify how money is flowing in versus flowing out.

I like to think about the cash flow statement as if it's a bathtub with

some water in it, and the water is cash, the amount of money that we have.

0:55

You got a little crack on the side, it's dripping out, you turn the shower on,

water is flowing in..

So you got water flowing in from various places,

you got water flowing out from various places.

And then what you can do is you can say, this is where the water level was at

period one, this is where the water level was at period two.

We had money, excuse me, water coming in from this side and that side.

We had money, water, flowing out from this side and that side.

This is how much started with and this is how much we ended with.

Of course, I'm mixing up the money and

water, because we're really talking about liquidity.

We're really talking about flows.

And we're really talking about money.

But the idea of a bath tub with things coming in and leaving gives me an ability

to view this statement in a way that it should be, very dynamic, cash flow.

2:41

And so our net income comes from our P&L.

Here we're going to look right over here, let me just show you this,

right over here, okay?

Remember this is our income statement right here, and

you'll notice that our income statement from Dell in

2011 has 2 billion, 635 million in net income.

If you go over here to our statement of cash flow,

you'll notice that the top line is $2 billion, 635 million.

So that is obviously from operations, that's where our money is coming from.

And so the net income is our top line on our,

so the bottomline on our income statement is the topline on our cash flow statement.

They’re very dynamic, all the statements are working together.

So here’s our operating, we have our net income and then we have depreciation.

Now, it's a little bit interesting.

In our cash flow, we add the depreciation back in.

Here's the reason behind this.

Remember that in our net income and

our balance statement, we're taking out depreciation.

That is, the IRS says hey your coffee machine has lost value,

you get to subtract that value from your income.

Hey your car has lost value you get to subtract that.

4:06

In reality, it's not like we're seeing the cash leave our complex.

It's just the IRS gives us, and affords us that mechanical depreciation,

that mechanical amortization, that mechanical subtraction,

but we haven't actually subtracted it.

It's really there, so we add depreciation back into our net income.

4:32

But what we have to do is we have to subtract out changes

that are either adversely affecting how much cash we have on hand,

or positively impacting the amount of cash we have on hand.

So if we have taxes that were deferred, that counted as

an asset before and now we have to subtract it from our cash.

We had operational gains and losses,

so here we had gains we have to subtract that,

we have increases in receivables and decreases in our working capital.

And so what's happening is that anything that subtracts cash from us,

we've got to subtract it from this equation.

Anything that adds the cash back in,

we have to add it back into the equation here.

And at the end of the day, after you subtract and

add, we end up with this net cash from operating activities.

So even though we had a net income of only $2.6 billion,

we actually have a change in cash of $3.9 billion.

Through accounting mechanisms, we were able to subtract some of those dollars.

But the cash in hand is in fact $3.9 billion.

I want you to look at your cashflow statement and walk through and make

sure that you understand the operational part, the cash flow for operations.