Understanding cash flow statement, What is Cash Flow Statement?

Understanding cash flow statement

A cash flow statement is a financial statement that reports the inflows and outflows of cash for a specific period of time, usually for a month, quarter, or year. The purpose of the cash flow statement is to provide information about a company’s cash generation and management, which is essential for investors and creditors to assess the company’s liquidity and financial stability (Kieso et al., 2019). There are three main sections in a cash flow statement: operating activities, investing activities, and financing activities. Operating activities involve the day-to-day operations of the business, such as the sale of goods or services and the payment of expenses. Investing activities involve the acquisition or disposal of long-term assets, such as property, plant, and equipment. Financing activities involve the acquisition or repayment of long-term debt and the issuance or repurchase of equity. The cash flow statement is used in conjunction with the income statement and balance sheet to provide a comprehensive view of a company’s financial performance and position. While the income statement shows a company’s profitability, and the balance sheet shows its assets, liabilities, and equity, the cash flow statement shows the movement of cash in and out of the company (BPP Learning Media, 2020). By analyzing the cash flow statement, investors and creditors can assess a company’s ability to generate cash, pay its debts, and make investments. Cont…