A cash flow statement is a financial statement that shows the flow of cash into and out of a company over a specific period of time, typically a quarter or a year. It provides information about a company’s cash inflows, such as cash received from sales or loans, and its cash outflows, such as payments for expenses or investments.
A cash flow statement is divided into three sections: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.
- Cash flow from operating activities: This section shows the cash generated or used in the company’s day-to-day operations, such as cash received from sales and cash paid for expenses.
- Cash flow from investing activities: This section shows the cash generated or used in the company’s investments in long-term assets, such as cash received from the sale of investments or cash paid for the purchase of property, plant, and equipment.
- Cash flow from financing activities: This section shows the cash generated or used in the company’s financing activities, such as cash received from issuing new stocks or bonds or cash paid for repaying debt.
The cash flow statement is an important financial statement because it provides information about a company’s ability to generate cash flow, which is necessary to pay bills, invest in growth, and pay dividends. It also provides information about a company’s liquidity, or its ability to meet its short-term obligations and it also helps to understand a company’s financial health, and to identify potential cash flow problems.
It’s important to note that the cash flow statement is complementary to the balance sheet and income statement, as it provides additional information about a company’s financial health and performance.