CASH FLOW

Cash Flow Statement: What it is and examples

By 

CHRIS B. MURPHY

 

Updated February 29, 2024

Reviewed by 

THOMAS J. CATALANO

What Is a Cash Flow Statement (CFS)?

A cash flow statement tracks the inflow and outflow of cash, providing insights into a company's financial health and operational efficiency.

The CFS measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. As one of the three main financial statements, the CFS complements the balance sheet and the income statement. In this article, we’ll show you how the CFS is structured and how you can use it when analyzing a company.

KEY TAKEAWAYS

• A cash flow statement summarizes the amount of cash and cash equivalents entering and leaving a company. 
• The CFS highlights a company's cash management, including how well it generates cash. 
• This financial statement complements the balance sheet and the income statement. 
• The main components of the CFS are cash from three areas: Operating activities, investing activities, and financing activities.
• The two methods of calculating cash flow are the direct method and the indirect method.

How the Cash Flow Statement Is Used

The cash flow statement paints a picture as to how a company’s operations are running, where its money comes from, and how money is being spent. Also known as the statement of cash flows, the CFS helps its creditors determine how much cash is available (referred to as liquidity) for the company to fund its operating expenses and pay down its debts. The CFS is equally important to investors because it tells them whether a company is on solid financial ground. As such, they can use the statement to make better, more informed decisions about their investments.

Structure of the Cash Flow Statement

The main components of the cash flow statement are:

1. Cash flow from operating activities
2. Cash flow from investing activities
3. Cash flow from financing activities
4. Disclosure of non-cash activities, which is sometimes included when prepared under generally accepted accounting principles (GAAP).(1)

   Financial Accounting Standards Board. "Summary of Statement No. 95."

5. (1) Generally Accepted Accounting Principles (GAAP)

6. Available at: https://www.investopedia.com/terms/g/gaap.asp (Acceso 20-03-2024)