Cash Flow Statement

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Overview

The cash flow statement shows how changes in the balance sheet and income statement affect cash and cash equivalents.

The cash flow statement shows how much cash has come in or gone out during the fiscal period. Since the income statement does not cover only cash related activities, investors could be easily misled about the cash situation of a company if the cash flow statement didn’t exist.

 

 

Cash Flow from Operations

Cash flow from operating activities shows the cash flows from every action that is related to the actual business operations. Think of it as the activities that are necessary to run the day-to-day operations of a business, such as selling the product, collecting the cash from credit sales, etc.

Cash Flow from Investing Activities

Although they are necessary for a business as a whole, investing activities are different from operating activities in that they are not necessary to run it daily. For example, buying new/additional manufacturing equipment has nothing to do with the daily operations of selling pens. Generally speaking, these cash flows primarily consist of purchasing/selling PP&E, as well as capital expenditures.

Cash Flow from Financing Activities

Cash flow from financing activities refers to all the cash flows that relate to dealing with the capital for your business. If you raise or repay debt, it’s a financing activity. If you issue new stock or decide to repurchase some, it’s also a financing activity. Exactly as the title says, this section of the cash flow statement focuses on how you are financing the company’s operations.