STEP 1The money held in the three boxes
A household budget is easy to take in at a glance if you record 'salary and living expenses', 'buying a home or car', and 'loans and repayments' separately. The three boxes of the cash flow statement are likewise divided by the reason money moved.
The three boxes set by accounting standards
The accounting standard (K-IFRS 1007) divides cash flows into three kinds of activities. are the company's main revenue-producing activities, plus anything that is neither investing nor financing. Money received from selling bread, and money paid out for ingredients, salaries and taxes, go here. are buying and selling long-lived assets and investment assets that are not cash equivalents. Property, plant and equipment such as ovens and stores, intangible assets such as software, stakes in other companies, and long-term deposits or financial products go here. change the size or composition of the capital and borrowings the company has raised. Borrowing and repaying money, issuing new shares, and paying dividends are typical examples.
| Box | Robin Bakery (fictional) line items | Amount (KRW 100 million) |
|---|
| Operating activities | The result of selling bread, cakes and coffee and paying for ingredients, labor and taxes | +18 |
| Investing activities | Purchase of oven and store equipment −8, intangible assets etc. −2 | −10 |
| Financing activities | Dividends paid −3, repayment of borrowings −1 | −4 |
| Total | Cash increase over the year (opening 4 → closing 8) | +4 |
Interest and dividends sit in different places at different companies
Some items are confusing. The accounting standard lets each company decide whether interest received and paid, and dividends received and paid, go under operating or under investing/financing activities, and requires it to follow the same approach every year. For example, one company reports interest paid under operating activities and another under financing activities. So when comparing two companies' operating cash flow, it is a good idea to first check which box holds interest, dividends and income taxes. For Robin Bakery, we will assume interest paid is reported in operating activities and dividends paid in financing activities.
Quick checkWhich box does each of these go in? (A) The construction cost of a new store's interior (B) Dividends paid to shareholders (Robin Bakery's classification) (C) Payment received from a customer for cakes
(A) Investing, (B) financing, (C) operating. Store interior spending creates a long-lived tangible asset, so it is investing; dividends are money returned to shareholders, so financing; and the cake payment is money from the core business, so operating.
STEP 2The bridge from net income to operating cash flow
Robin Bakery's net income is KRW 1.2 billion, but its operating cash was KRW 1.8 billion. Where did the extra KRW 600 million come from? Let's cross the bridge using the indirect method, which most real reports use.
Two adjustments, adding and subtracting
The starts from net income and corrects two things. First, it adds back , which were deducted when calculating profit but did not take cash out that year. The classic example is depreciation. Robin Bakery has KRW 1 billion of depreciation in total, KRW 800 million in cost of sales and KRW 200 million in SG&A, so it adds back KRW 1 billion.
Second, it reflects changes in money tied up or released by running the business, that is, . You only need to remember one rule. When assets rise, cash falls; when liabilities rise, cash rises. A rise in credit sales owed to you () means more money was booked as revenue but not yet collected, so it is subtracted from cash. A rise in warehouse inventory means money was spent in advance to buy ingredients, so it is subtracted too. Conversely, if money owed to suppliers () or cake reservation deposits received in advance () rise, the money has not yet been paid or has been received early, so it is added to cash.
Operating cash flow = net income + non-cash expenses − increase in working capitalRobin Bakery (fictional): 12 + 10 − (receivables 0.8 + inventory 0.7 + other 2.5) = KRW 1.8 billion (units: KRW 100 million)
See it in a chart: the operating cash flow bridge
Change the scenario with the buttons below. They show how operating cash changes with the same net income when receivables suddenly rise or inventory is stocked up in advance.
These are the year-3 numbers of the fictional Robin Bakery. The scenario buttons are hypothetical calculations that change just one thing with everything else held equal. Net income is KRW 1.2 billion in every scenario.
As the chart shows, even with the same net income, operating cash can be KRW 800 million or KRW 2.1 billion. That is why investors often look at operating cash flow divided by net income. Robin Bakery's is 18 ÷ 12 = 1.5x, meaning more cash came in than profit earned. If this ratio stays well below 1x for several years, profit is not turning into cash, which we revisit as 'earnings quality' in Lesson 22.
Common misconceptions
- "Depreciation gets added back, so the more depreciation, the better the company?"
- No. Depreciation is money already spent in the past on buying equipment. Operating cash looks larger, but a company that must keep buying new equipment will pay it out again in investing activities. You have to look at both boxes together.
- "More trade payables means more cash, so it's always good?"
- It means paying suppliers later, so cash rises for now, but the money must be repaid eventually. If it jumps sharply in just one year, check with the following year whether payments were pushed back at year-end.
- "If operating cash flow is positive, there is nothing to worry about?"
- It is only a good starting point showing that the core business earns cash. If capital spending, interest and dividends keep exceeding that cash, the gap eventually has to be filled by borrowing. The sign pattern in the next STEP shows the whole picture.
Quick checkIn one year, Robin Bakery had net income of KRW 1.2 billion, depreciation of KRW 1 billion, a receivables increase of KRW 500 million, an inventory decrease of KRW 200 million and a trade payables increase of KRW 100 million. What is operating cash flow? (Assume there are no other items.)
KRW 2 billion. 12 + 10 − 5 + 2 + 1 = 20 (KRW 100 million). Receivables are subtracted because the asset rose; inventory is added because the asset fell (ingredients in the warehouse were used up and cash was released); and trade payables are added because the liability rose.
STEP 3Reading a company from its sign pattern
If you only ask whether each box is positive (+, money coming in) or negative (−, money going out), there are eight combinations. Each combination has a company profile that commonly comes to mind.
See it in a chart: sign pattern explorer
Tap the sign of each box to change it, or tap one of the example buttons below. A type card matching the combination appears. The type names are general interpretations commonly used by investors, not classifications set by accounting standards.
Operating
Investing
Financing
Robin Bakery and Dark Cloud Electronics are fictional companies. The real large listed company example uses the 2024 figures from the same report as the DART screen below. The type names are general interpretations, and the same combination can mean different things depending on the industry and period.
Robin Bakery is +/−/−. It invests in equipment with money earned from its core business, repays a little debt, and even pays dividends. This is the most welcome pattern for a mature company. Dark Cloud Electronics (fictional) was said to have earned KRW 300 million of net income in year 3, but its operating activities were −KRW 2.2 billion. Receivables and inventory ballooned so the core business actually soaked up cash, and the hole was plugged with KRW 2 billion of convertible bonds and KRW 500 million of short-term borrowings. Its signs are −/−/+. That pattern is common for a growth company that has just started, but when a company that claims three straight years of profit looks like this, it is a warning sign that profit and cash are moving apart (Lesson 21).
Finding it yourself on DART: the bridge and the three boxes
This time, read the consolidated cash flow statement you opened in Lesson 18 line by line from the top. This is only an example of finding your way around, not an investment recommendation.
![Rows of the DART annual report consolidated cash flow statement: cash flows from operating activities, net income, adjustments, changes in assets and liabilities, and cash flows from investing activities]()
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- 1Total cash flows from operating activities: 2024, KRW 72,982,621 million (about KRW 73.0 trillion).
- 2Net income, the starting point of the bridge: KRW 34,451,351 million (about KRW 34.5 trillion).
- 3Adjustments: the line that reverses non-cash expenses such as depreciation, and items reported separately such as interest and income taxes (about KRW 42.9 trillion). The breakdown is in Note 27.
- 4Changes in assets and liabilities from operating activities: the change in working capital (about −KRW 1.6 trillion). The more receivables and inventory rise, the larger the negative.
- 5Total cash flows from investing activities (about −KRW 85.4 trillion). Further down are financing activities and closing cash.
Source: FSS DART, Samsung Electronics annual report (filed 2025.03.11, rcpNo 20250311001085) III-2-5 Consolidated Cash Flow Statement, checked 2026-10-08. This company reports interest received and paid, dividend income and income taxes paid under operating activities, and dividends paid under financing activities. This is an example of finding your way around, not a stock recommendation.
Summarizing three years from the same statement by sign gives the table below. All three years are +/−/−. Even in 2023, when net income fell sharply, operating cash was about 2.8 times net income, a feature of capital-intensive industries with heavy depreciation.
| Year | Net income | Operating | Investing | Financing | Signs |
|---|
| 2024 | 34.5 | +73.0 | −85.4 | −7.8 | +/−/− |
| 2023 | 15.5 | +44.1 | −16.9 | −8.6 | +/−/− |
| 2022 | 55.7 | +62.2 | −31.6 | −19.4 | +/−/− |
Unit: KRW trillion (raw data in KRW millions, rounded). Source: consolidated cash flow statement of the same report as above, checked 2026-10-08.
There is one more point to note. Not all of the −KRW 85.4 trillion of investing activities in 2024 went into factory equipment. The same box contains roughly −KRW 51.4 trillion for acquisition of property, plant and equipment and roughly −KRW 33.0 trillion for moving spare cash into short-term financial instruments, such as time deposits with maturities over three months. Conversely, in 2023 the company cut short-term financial instruments by about KRW 39.4 trillion and turned them back into cash. This is why you should not automatically read a large negative in investing as 'investing aggressively in equipment', and should check the acquisition of property, plant and equipment line separately. That line becomes the raw material for free cash flow in the next lesson.
How to use it in investing
| When you see this pattern | Check it like this |
|---|
| +/−/− continues for several years | The core business covers investment and shareholder returns. Check whether operating cash is consistently larger than capital spending (Lesson 20, FCF) |
| It changed to +/−/+ | Investing heavily with borrowed money on top of earned money. Check what is being invested in, the scale of borrowing, and the interest coverage ratio (Lesson 10) |
| −/−/+ or −/+/+ while net income is positive | Profit is not turning into cash. Check increases in receivables and inventory, and convertible bond and paid-in capital increase disclosures (Lessons 21 and 31) |
| Investing turned positive | Check the detailed lines to see whether equipment or stakes were sold, or financial instruments were turned back into cash |
Not always. A sign pattern is only the shape of a single year, and for a new biotech or platform company, −/−/+ can be a normal part of growth. Always look at several years and the industry's characteristics together, and compare the size of the amounts too. This lesson does not recommend buying or selling any particular stock.
Quick checkA company's cash flows were operating +KRW 5 billion, investing +KRW 3 billion (sale of a factory) and financing −KRW 7 billion (repayment of borrowings). What are the sign pattern and its common interpretation?
The combination is +/+/−, commonly read as the 'restructuring type'. It is a pattern of repaying debt with money earned from the core business and money from selling a factory. It may be strengthening its financial structure, or it may be shrinking the business, so check what was sold and next year's operating cash together.