The cash flow statement provides a detailed breakdown of a company's cash inflows and outflows over a specific period. It is divided into three main sections:
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Operating Activities:
- Cash receipts from customers (sales revenue)
- Cash payments to suppliers and employees (cost of goods sold and operating expenses)
- Cash generated from operations
- Adjustments for non-cash items (depreciation, amortization, changes in working capital)
- Other cash flows related to operations
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Investing Activities:
- Cash outflows for the purchase of fixed assets (property, plant, and equipment)
- Cash inflows from the sale of fixed assets
- Cash outflows for investments in securities or other companies
- Cash inflows from the sale of investments
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Financing Activities:
- Cash inflows from issuing shares or taking on debt
- Cash outflows for repaying loans or buying back shares
- Dividends paid to shareholders
The cash flow statement helps stakeholders assess the company's liquidity, financial health, and cash management practices by illustrating how cash is generated and used during the reporting period.