A cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents (CCE) entering and leaving a company. The CFS highlights a company’s cash management, including how well it generates cash to pay its debt obligations and fund its operating expenses.
Key Facts
- Cash flow from operating activities: This section shows the cash generated or used by a company’s core operations. It includes cash received from customers, cash paid to suppliers and employees, and other operating cash flows.
- Cash flow from investing activities: This section reflects the cash flows related to the purchase or sale of long-term assets, such as property, equipment, and investments. It includes cash inflows from the sale of assets and cash outflows from the purchase of assets.
- Cash flow from financing activities: This section shows the cash flows related to the company’s financing activities, such as issuing or repurchasing stock, borrowing or repaying loans, and paying dividends. It includes cash inflows from issuing stock or borrowing and cash outflows from repurchasing stock, repaying loans, and paying dividends.
- Net cash flow: This is the overall change in the company’s cash and cash equivalents during the reporting period. It is calculated by summing the cash flows from operating, investing, and financing activities.
Components of a Cash Flow Statement
The main components of the cash flow statement are:
- Cash flow from operating activities
- Cash flow from investing activities
- Cash flow from financing activities
- Disclosure of non-cash activities(sometimes included when prepared under generally accepted accounting principles (GAAP))
Cash Flow from Operating Activities
The operating activities on the CFS include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from a company’s products or services.
Cash Flow from Investing Activities
Investing activities include any sources and uses of cash from a company’s investments. Purchases or sales of assets, loans made to vendors or received from customers, or any payments related to mergers and acquisitions (M&A) are included in this category.
Cash Flow from Financing Activities
Cash from financing activities includes the sources of cash from investors and banks, as well as the way cash is paid to shareholders. This includes any dividends, payments for stock repurchases, and repayment of debt principal (loans) that are made by the company.
Net Cash Flow
Net cash flow is the overall change in the company’s cash and cash equivalents during the reporting period. It is calculated by summing the cash flows from operating, investing, and financing activities.
Sources Cited
- Investopedia: What Is a Cash Flow Statement?
- Harvard Business School Online: How to Prepare a Cash Flow Statement
- Investopedia: Cash Flow Analysis: The Basics
FAQs
What is a cash flow statement?
A cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents (CCE) entering and leaving a company.
What are the main components of a cash flow statement?
The main components of a cash flow statement are cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.
What is included in cash flow from operating activities?
Cash flow from operating activities includes any sources and uses of cash from business activities, such as cash received from customers, cash paid to suppliers and employees, and other operating cash flows.
What is included in cash flow from investing activities?
Cash flow from investing activities includes any sources and uses of cash from a company’s investments, such as cash inflows from the sale of assets and cash outflows from the purchase of assets.
What is included in cash flow from financing activities?
Cash flow from financing activities includes any sources and uses of cash from the company’s financing activities, such as cash inflows from issuing stock or borrowing and cash outflows from repurchasing stock, repaying loans, and paying dividends.
What is net cash flow?
Net cash flow is the overall change in the company’s cash and cash equivalents during the reporting period. It is calculated by summing the cash flows from operating, investing, and financing activities.
Why is the cash flow statement important?
The cash flow statement is important because it provides information about a company’s cash inflows and outflows, which can be used to assess the company’s financial health and liquidity.