What is Cash-Flow Statement?

Cash flow statement is a financial statement that provides a summary of the cash inflows and outflows of a business over a specific period of time. It shows how cash moves in and out of a company, providing valuable insights into its liquidity, operating activities, investing activities, and financing activities.

Here's a breakdown of the key components typically found on a cash flow statement:

Operating Activities:

This section of the cash flow statement shows the cash generated or used by a company's primary business operations. It includes cash receipts from sales, interest received, and dividends received, as well as cash payments for operating expenses, interest paid, income taxes paid, and other expenses related to operating the business. Operating cash flow is a key measure of a company's ability to generate cash from its core business activities.

Investing Activities:

This section reflects the cash flows associated with the buying and selling of long-term assets and investments. It includes cash receipts from the sale of assets such as property, plant, and equipment, as well as cash payments for the purchase of these assets, investments in securities, and loans made to other entities. Investing cash flow provides insights into how a company is investing its resources for future growth and expansion.

Financing Activities:

This section shows the cash flows related to the financing of a company's operations, including cash received from issuing debt or equity securities and cash payments for dividends, share buybacks, and debt repayments. It reflects how a company is raising capital and managing its debt and equity financing. Financing cash flow is important for assessing a company's capital structure and financial flexibility.

Net Cash Flow:

The net cash flow is the sum of the cash flows from operating, investing, and financing activities. It represents the overall change in the company's cash position during the reporting period. A positive net cash flow indicates that the company has more cash inflows than outflows, while a negative net cash flow indicates the opposite.

The cash flow statement is a crucial financial tool used by investors, creditors, analysts, and company management to assess a company's ability to generate cash, meet its financial obligations, and fund its operations and growth initiatives. It provides insights into the sources and uses of cash within a company, helping stakeholders make informed decisions about investing, lending, or doing business with the company.