Statement of Cash Flows – Essentials

Purpose of the Statement of Cash Flows

• Tracks cash inflows/outflows over a specific period, offering a "cash heartbeat" of the business.
• Complements the income statement by revealing actual cash movement, not just profit.
• Helps stakeholders evaluate liquidity, solvency, and overall financial strength.

Operating Activities

• Cash from core business operations:
  • \text{Cash received from customers}
  • \text{Payments to suppliers}
  • \text{Salaries and wages}
  • \text{Taxes paid}
• Indicates the firm’s ability to generate cash from regular activities.

Investing Activities

• Cash related to acquisition or disposal of long-term assets:
  • \text{Purchase / sale of land, buildings, equipment}
• Reflects how the firm allocates resources for future growth or asset optimization.

Financing Activities

• Cash flows between the company and capital providers:
  • \text{Borrowing proceeds or debt repayment}
  • \text{Issuing stock or repurchasing shares}
  • \text{Dividend payments}
• Shows how the firm manages its capital structure and obligations.

Key Takeaway

• The statement groups cash flows into 3 sections—Operating, Investing, Financing—providing a holistic view of how cash is generated, used, and allocated within the business.