Operating, investing and financing
Operating cash flows relate to the principal revenue-producing activities and other items classified as operating under the relevant rules. Investing flows generally include purchases and sales of long-lived assets and investments. Financing flows change borrowings and owner funding. Classification is governed by accounting rules, not simply management's preferred story.
Classify a workshop's payments
Cash collected from repair customers is operating. Buying equipment is investing. Borrowing from a bank is financing. Repaying principal is financing. Under US GAAP, interest paid is generally operating and dividends paid are financing, with specific exceptions and presentation details. IFRS classification has differences and changes linked to IFRS 18 for relevant reporting periods; check the applicable framework and adoption date.
A noncash purchase financed by a lease or an exchange of shares is not a cash outflow merely because an asset and liability appear. Significant noncash investing and financing transactions require the appropriate disclosures outside the cash totals.
The direct method shows major operating cash receipt and payment categories. The indirect method starts with an earnings measure and reconciles to operating cash. These are different presentations of operating cash flow, not two different businesses.
Always reconcile beginning to ending cash and inspect the definition of cash, equivalents and restricted cash used. Foreign-exchange effects can be a separate reconciliation item; they are not necessarily operating cash generation.