What is included in Operating Activities on the cash flow statement?

• A. Purchase of land and equipment
• B. Issuing new shares of stock
• C. Changes in operating balance sheet items
• D. Payment of dividends

Answer: (C)

Operating activities on the cash flow statement primarily include transactions that relate to the core business operations of a company. This captures the cash inflows and outflows from regular business activities aimed at generating revenue. Changes in operating balance sheet items refer to adjustments in accounts such as accounts receivable, inventory, accounts payable, and other current assets and liabilities, which reflect the cash impact of the company’s operational choices over a given period.

This component of the cash flow statement is crucial as it provides insight into how well a company generates cash from its primary business activities, indicating its operational efficiency and overall financial health. Understanding these changes helps analysts assess how effectively a business is managing its working capital and adapting to its operational needs.

In contrast, purchasing land and equipment, issuing new shares of stock, and paying dividends are classified under investing and financing activities, respectively, which relate more to long-term asset management and capital structure decisions rather than day-to-day operational financing.