A cash flow statement is a financial statement that provides a detailed analysis of the cash inflows and outflows of an organization over a specific period of time. It shows how cash is generated and used in operating, investing, and financing activities, helping stakeholders understand how the company manages its cash to fund operations, invest in growth, and meet financial obligations.
Components of a Cash Flow Statement
- Operating Activities:
- Definition: Cash flows resulting from the company’s primary business operations. This includes cash received from sales of goods and services and cash paid for operating expenses.
- Key Items:
- Cash Receipts: Cash received from customers and other operating sources.
- Cash Payments: Cash paid to suppliers, employees, and for operating expenses (e.g., rent, utilities).
- Adjustments: Adjustments for non-cash items such as depreciation and changes in working capital accounts (e.g., accounts receivable, accounts payable).
- Investing Activities:
- Definition: Cash flows related to the acquisition and disposal of long-term assets and investments. This includes investments in property, equipment, and securities.
- Key Items:
- Cash Outflows: Payments for purchasing property, plant, equipment, or investments.
- Cash Inflows: Proceeds from the sale of property, equipment, or investments.
- Investments in Subsidiaries: Cash used for acquiring or investing in other businesses.
- Financing Activities:
- Definition: Cash flows related to the company’s capital structure, including obtaining and repaying capital from investors and creditors.
- Key Items:
- Cash Inflows: Proceeds from issuing stock or bonds, and borrowing funds.
- Cash Outflows: Repayment of loans, payment of dividends, and repurchase of stock.