Cash Flow Statement
The cash flow statement is a financial accounting report that demonstrates how cash flows both into and out of a company. Cash flow statements provide investors and analysts with insights into the change in cash and cash equivalents in a given accounting period.
Net Cash Flow = Cash Flow from Operations + Cash Flow from Investing + Cash Flow from Financing
Note: While the above calculation shows three additive elements, the cash flow from investing and financing activities are oftentimes negative values.
Also known as the statement of cash flows and funds flow statement, a company's cash flow statement connects information that appears on both the balance sheet as well as the income statement. There are three main categories appearing in this report:
- Operations: begins with net income then adjusts for non-cash expenses such as depreciation, amortization, and deferred income taxes. Includes changes to balance sheet items such as inventories, accounts receivable, as well as accounts payable and other liabilities.
- Investing Activities: includes the purchase or sale of assets, capital expenditures, dividends received, and the net change to other investments such as marketable securities.
- Financing Activities: consists of money received when issuing long term debt, payment of dividends, repurchases or sales of company stock, and repayment of loans.
Companies with foreign operations may also report the effect currency exchange rates have on their cash position.
The cash flow statement helps investors and creditors to gain insights into the liquidity position of a business. It also provides for a better understanding of the company's true operating performance, since it eliminates the effects of the company's chosen accounting method.
The table below summarizes the information appearing on Company A's cash flow statement: