Statement grouping cash inflows and outflows into operating, investing, and financing activities for a reporting period.
The cash flow statement explains how cash and cash equivalents changed during a reporting period. It groups cash movements into operating, investing, and financing activities.
Profit does not automatically equal cash. A business can report strong net income and still face liquidity pressure if receivables rise, inventory grows, or debt repayments absorb cash. The cash flow statement is the report readers use to judge liquidity and cash generation directly.
Operating cash flow usually starts either with gross cash receipts and payments or, under the indirect method, with net income and then adjusts for non-cash items and working-capital changes.
Investing activities usually include purchases and sales of long-term assets and investments. Financing activities usually include borrowing, repayments, owner contributions, share repurchases, and dividends.
The ending cash balance should tie back to the cash line on the balance sheet.
Assume a company reports:
| Cash Flow Section | Amount |
|---|---|
| Net cash from operating activities | 42,000 |
| Net cash used in investing activities | (20,000) |
| Net cash from financing activities | 10,000 |
| Net increase in cash | 32,000 |
If opening cash was 18,000, ending cash is 50,000.
Strong operating cash flow does not automatically mean high profit, and strong profit does not automatically mean strong cash flow. Timing differences in receivables, payables, inventory, and capital spending can separate the two sharply.