A cash flow statement is one of the key financial statements used to assess the financial health of a business. It provides a detailed summary of the cash inflows and outflows over a specific period of time. The cash flow statement is divided into three main sections:
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Operating Activities: This section reports the cash generated or used by the core business operations. It typically includes:
- Cash receipts from customers
- Cash payments to suppliers and employees
- Cash generated from operations
- Adjustments for non-cash items like depreciation and changes in working capital
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Investing Activities: This section reflects cash transactions for the purchase and sale of physical and financial investments. It includes:
- Cash outflows for the purchase of property, plant, and equipment (capital expenditures)
- Cash inflows from the sale of such assets
- Cash flows from the purchase and sale of investments in securities
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Financing Activities: This section shows the cash flows resulting from financing the business. It includes:
- Cash inflows from borrowing (e.g., bank loans, bonds issued)
- Cash outflows for repaying loans
- Cash inflows from issuing stock
- Cash outflows for paying dividends
At the end of the cash flow statement, the net increase or decrease in cash during the period is calculated by combining the totals from all three sections. This net change is then added to the beginning cash balance to arrive at the ending cash balance for the period.
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