What Is a Cash Flow Statement?

What Is a Cash Flow Statement?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

A Cash Flow Statement is a financial report that gives information about a company’s inflows and outflows of cash during a specific period. It depicts how a business obtains and uses cash for its operations, investments, and financial activities. It’s divided into three main parts:

1. Cash flow from Operating Activities: This section includes the cash generated from a company’s main business operations like selling goods, providing services, or other regular business activities.
2. Cash flow from Investing Activities: This part shows cash gained or lost from investments like the purchase or sales of long-term assets, such as property or equipment.
3. Cash flow from Financing Activities: Here, the cash transactions related to debt, equity, and dividends are reported.

By reviewing a Cash Flow Statement, investors can understand a company’s liquidity level and how effectively it manages its cash position.

Related Questions

1. What is the difference between a cash flow statement and a balance sheet?

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A Cash Flow Statement shows the inflow and outflow of cash within a specific period. It gives insight into the liquidity or cash position of a company. On the other hand, a Balance Sheet is a snapshot of a company’s financial status at a certain point in time, detailing its assets, liabilities, and shareholders’ equity.

2. Why is a cash flow statement useful?

A Cash Flow Statement is useful because it provides detailed information about a company’s ability to generate cash to meet its debt obligations and fund its operating expenses. It thus helps investors make informed decisions about the company’s financial health.

3. How is a cash flow statement structured?

It’s structured into three parts: cash flow from Operating Activities, Investing Activities, and Financing Activities. These sections help in understanding how cash is generated and used in these three core areas of a company’s business.

4. Can a company be profitable and still have a negative cash flow?

Yes, it’s possible. A company may show profits on its income statement but may still have a negative cash flow due to significant investments in assets or other business expenses that deplete available cash.

5. What is operating cash flow?

Operating cash flow is the cash generated from a company’s regular business operations. It’s an indication of whether a company can generate enough positive cash flow to maintain and grow its operations. Negative operating cash flow could be a sign of trouble for a company.