Cash Flow Statement

 
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A Cash flow statement shows the change in a company's cash balance over a certain period. It is one of the four major financial statements reported by companies under the International Financial Reporting Standards (IFRS) and the US Generally Accepted Accounting Principles (GAAP). The SEC requires US public companies to report unaudited cash flow statements every quarter, and an audited cash flow statement every year.

The cash flow statement breaks down cash inflows and outflows of a business into three broad categories: operating, investing and financing. Unlike the balance sheet and the income statement, the cash flow statement is not based on accruals accounting, which means, it only takes into account transactions for which there has been a cash exchange. For example: Depreciation expenses do not affect a company's cash flow statement.

The statement is useful for determining a company's short-term strength/weakness, since it shows the company's ability to pay for its expenses.

Sections of Cash Flow Statement

Operating

The operating section contains all cash flow related to operating the business. Examples of transactions that are accounted for in this section are:

  • Cash received from sale of goods
  • Payment to Employees
  • Receipts
  • Misc. materials
  • Utilities
  • Entry fee

Investing

The investing section reports cash flow from long-term investments that the company has made. Examples of transactions in this section are:

  • Capital Expenditures (e.g. buying a machine or a building)

Financing

The financing section reports cash flow from investors and debt holders. Examples of transactions in this section are:

  • Issuance/Repurchase of Shares
  • Dividend Payments
  • Retirement of debt
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