CASH FLOW STATEMENT
Cash Flow Statement in Business, is a financial statement that explains the volume of cash or cash equivalents coming and going from a company. Same as Income Statement, Cash Flow Statement also measures the performance of a company during a period of time. It determines how a company manages its cash position, ie., how a company generates cash for paying their creditors and create fund for its operating expenses.
A company’s financial statements generally contain three critical parts of: the balance sheet, the income statement, and the cash flow statement. The balance sheet shows company’s assets and liabilities and income statement indicates the business’s profitability during a certain period. The cash flow statement records the company’s cash incoming and outgoing transactions during a given period.
The main objective of this document is to present a detailed view of what happened to a business’s cash in an accounting period. It explains an organization’s capacity to operate in the short and long term, based on the volume of cash moving in and out of the business.
The cash flow statement is mainly contains three sections:
Operating activities
Investing activities
Financing activities
Operating activities in Cash Flow Statement
Operating activities is the cash movement that’s generated through their normal business activities like selling of goods and services which includes both revenue and expenses.
Investing Activities
Investing activities is the cash flow arising from purchasing or selling assets, and non-physical property, like patents—using free cash.
Financing Activities
Financing activities detail cash flow from both debt and equity financing.
Positive cash flow indicates that a company has more money flowing into the business than moving and negative cash flow means your cash outflow is higher than cash inflow. Positive cash flow does not necessarily interpret to profit. A business can be profitable without being cash flow-positive, and can have positive cash flow without actually making a profit.
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