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What Is a Cash Flow Statement?

A cash flow statement is a financial statement that shows the increase or decrease in a company's cash and cash equivalents over a period, broken down by type of activity.

Change in Cash and Cash Equivalents = Operating CF + Investing CF + Financing CF

The three sections

A cash flow statement is made up of three sections: "operating activities," which shows cash flows from the core business; "investing activities," which shows items such as capital expenditure and the purchase or sale of securities; and "financing activities," which shows items such as borrowing and dividend payments.

Points to watch when reading it

It is generally considered desirable for operating cash flow to be positive. Whether investing activities stay within the bounds of cash generated by operations (the state of free cash flow) is also a useful reference point when assessing financial health.

This article is provided for general informational purposes only and does not recommend or solicit the purchase or sale of any specific investment method or security. Final investment decisions are your own responsibility.

Frequently Asked Questions

Why can cash fail to increase even when a company reports a profit?
Profit on the income statement is calculated based on the timing of accounting entries, such as increases in accounts receivable or recording depreciation expense, which can differ from the actual timing of cash movements. Looking at the cash flow statement helps reveal the gap between reported profit and actual cash movement.
What does it mean when operating cash flow is negative?
It means the cash used in the core business exceeded the cash generated by it. This can result from a temporary factor or from an underlying profitability issue, so it is generally worth checking alongside other periods and the income statement.

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