What Is a Cash Flow Statement?

A cash flow statement is a 澳洲幸运5官方开奖结果体彩网:financial statement that reflects how much cash comes in and out of a business over a certain period. It is one of the most intuitive financial statements because it follows the cash earned by the business through operating, investment, and financing activities. Companies must file cash flow statements to remain compliant with financial regulators.

How Cash Flow Statements Work

Every company that sells and offers stock to the public must file financial reports and statements with the 澳洲幸运5官方开奖结果体彩网:Securities and Exchange Commi🌄ssiꦉon (SEC). The four main financial statements are:

• Balance sheet: This shows detailed information about a company’s assets, liabilities, and shareholders’ equity.
• Income statement: This shows a company’s revenue earned during a set time, usually one year or less, plus the costs and expenses that went into earning the revenue.
• Statement of shareholders’ equity: This shows changes in the interests of the company’s shareholders over time.
• Cash flow statement: This shows all the inflows and outflows of the company’s cash. It helps interested parties gain insight into all the transactions that go through a company.
  

Cash flow statements highlight a company's financial well-being based on its cash inflows and outflows. Inflows are the result of a company's ongoing operations and external investment sources while outflows reflect money paid for business activities and investments during a given period. There are two different methods of accounting for cash inflow and outflow. They are:

• 澳洲幸运5官方开奖结果体彩网:Accrual accounting: This method is commonly used by public companies. It recognizes income when it’s earned, not when it’s received, and expenses when they are incurred, not when they are paid. The 澳洲幸运5官方开奖结果体彩网:income statement is not the same as the company’s cash position.
• 澳洲幸运5官方开奖结果体彩网:Cash accounting: This method recognizes income when the cash is received and expenses when they are paid. The cash flow statement is focused on cash accounting.

Profitable companies can fail to 澳洲幸运5官方开奖结果体彩网:adequately manage cash flow, which is why the cash flow statement is important for investors and analy✃sts. Even though a company extends credit to its customers and recognizes that sale as revenue, it doesn’t have the cash yet. Nevertheless, it earns a profit on the income statement and pays income taxes on that profit. If it does this too often, it faces the danger of running out of cash despite technically being profitable.

How a Cash Flow Statement Is Organized

A cash flow statement is divided into three main parts: operations, investing, and financing. Each has a separate section of the cash flow statement, which helps investors determine the value of a company’s stock or 澳洲幸运5官方开奖结果体彩网:the company as a whole. The sum of the cash generated by these three segments is called net cash flow.

Cash Flows From Operations

The first section of the cash flow statement covers 澳洲幸运5官方开奖结果体彩网:cash flows from 𝕴operating activities. This section begins with net income and reconciles a𓄧ll noncash items to cash items involving operational activities. Put simply, it is the company’s net income🧸, but in a cash version.

This section reports cash inflows and outflows directly related to a company’s main business activities. These may include buying and 🍰selling inventory and supplies, and paying employee salaries, but exclude in♔vestments, debts, and dividends.

Companies must generate sufficient positive cash flow for operational growth or they may need financing to expand. For example, 澳洲幸运5官方开奖结果体彩网:accounts receivable (AR) is a noncash account. Higher AR means sales are up, but no cash came in at the time of sale. Receivables are deducted from net income because they are not cash. The cash flow statement can also include 澳洲幸运5官方开奖结果体彩网:accounts payable (AP), 澳洲幸运5官方开奖结果体彩网:depreciation, amortization,𒈔 and numerous prepaid items that are booked as revenue or expenses with no associated cash flow.

Cash Flows From Investing

The second section looks at 澳洲幸运5官方开奖结果体彩网:cash flows from investing and is the result of investment gains and losses. It also includes cash spent on property, plants, and equipment. It is where analysts look to find changes in 澳洲幸运5官方开奖结果体彩网:capital expenditures.

When capital expenditures incꦡrease, cash flow generally goes down. However, that’s not always a bad thing, as it may indicate that a company is investing in its future operations. Companies with high capital expenditures tend to be those that are growing.

Positive cash flows within the CFI section, which can be generated in such ways as selling equipment or property, can be considered g💫ood. However, investors usually prefer that companies generate their cash flow primarily from business operations.

Cash Flows From Financing

澳洲幸运5官方开奖结果体彩网:Cash flows from financing provides an overview of cash used in business financing and measures cash flow between a company and its owners and creditors. The cash normally comes from debt or equity, such as selling stocks and bonds or borrowing from a bank. These figures are generally reported annually on a company’s 10-K report to shareholders.

Analysts use the CFF section to determine how much money the company pays out via dividends or 澳洲幸运5官方开奖结果体彩网:share buybacks. It’s also useful to help determine ho🌼w a company raises cash fo🌸r operational growth. Cash obtained or paid back from capital fundraising efforts and loans is listed here. 

Positive cash flow from financing means more money comes into the company than flows out. When the number is negative, it may mean the company is paying off debt or making dividend payments and🧸/or stock buybac🔥ks.

The Bottom Line

The cash flow statement has three key sections: operations, investments, and financing. Even if the business uses accrual accounting as its main reporting system, the cash flow statement is focused on cash accounting, allowing managers, analysts, and investors to 澳洲幸运5官方开奖结果体彩网:assess how well a company is doing. Investors generally prefer that companies generate the bulk of their cash flow from operations rather t✤han investing and financing. After all, operations are 🍬what a company is created to do.