A cash flow statement is a financial statement that shows the inflows and outflows of cash and cash equivalents over a specific period of time. It is one of the key financial statements used by companies, investors, and analysts to evaluate a company’s liquidity, financial performance, and ability to meet its short-term obligations.
The cash flow statement is divided into three main sections: operating activities, investing activities, and financing activities. The operating activities section shows the cash flows from the company’s core business operations, such as revenue from sales, payments to suppliers, and salaries paid to employees. The investing activities section shows the cash flows related to the company’s investments in long-term assets, such as property, plant, and equipment, or acquisitions of other companies. The financing activities section shows the cash flows related to the company’s financing activities, such as the issuance or repayment of debt, payment of dividends, or the issuance or repurchase of shares.
The cash flow statement helps investors and analysts understand how a company generates and uses its cash and cash equivalents. It provides insight into the company’s ability to generate cash from its core business operations and whether it has enough cash to meet its financial obligations, such as debt repayment, capital expenditures, or dividend payments. It also helps investors and analysts evaluate the company’s financial health and potential for future growth.
In summary, the cash flow statement is a critical financial statement that provides valuable information about a company’s cash flow activities, which is essential for assessing the company’s financial health and future prospects.