Uncategorized
Guide to Financial Statements: Cash Flows
Overview
Cash flow statements report a company’s inflows and outflows of cash. This is important for obvious reasons. Cash flow statements basically reorder the income and balance sheets to generate a dynamic movie of changes in cash over time.
The bottom line of the cash flow statement shows the net increase or decrease in cash for the period. More cash, year over year, is good. Generally, cash flow statements are divided into three main parts. Each part reviews the cash flow from one of three types of activities:
Operating Activities
The first part of a cash flow statement analyzes a company’s cash flow from net income or losses. For most companies, this section of the cash flow statement reconciles the net income (as shown on the income statement) to the actual cash the company received from or used in its operating activities. To do this, it adjusts net income for any non-cash items (such as adding back depreciation expenses) and adjusts for any cash that was used or provided by other operating assets and liabilities.
Investing Activities
The second part of a cash flow statement shows the cash flow from all investing activities, which generally include purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities. If a company buys a piece of machinery, the cash flow statement would reflect this activity as a cash outflow from investing activities because it used cash. If the company decided to sell off some investments from an investment portfolio, the proceeds from the sales would show up as a cash inflow from investing activities because it provided cash.
Financing Activities
The third part of a cash flow statement shows the cash flow from all financing activities. Typical sources of cash flow include cash raised by selling stocks and bonds or borrowing from banks. Likewise, paying back a bank loan would show up as a use of cash flow.
Continued Reading
Guide to Financial Statements: Intro
Guide to Financial Statements: Income Statements
Guide to Financial Statements: Balance Sheets
Theoretically Related Posts
Tags: Discussion
One comment for “Guide to Financial Statements: Cash Flows”
Post a comment
[...] Reading Guide to Financial Statements: Intro Guide to Financial Statements: Balance Sheets Guide to Financial Statements: Cash Flows Share and Enjoy: These icons link to social bookmarking sites where readers can share and [...]