As the statement itself suggests that it is a type of financial statement of a company which measures the flow of cash. It tells the total flow of cash in and outside any company helps in calculating profit and also measures the ability of a company to manage its cash for debt and other expenses. It has been a mandatory element in any company’s financial report since 1987.
How cash flow statement works
A cash flow statement can work in majorly three ways :
- Operating Activities
- Investing Activities
- Financing Activities
Cash Flow Statement in Operating Activities
These activities are the backbone of any company because it involves production of goods and delivery of it also . They reflect the total effects in cash including all the transactions i.e, net income. It mainly analyzes the company’s cash flow b net income and losses.
Cash Flow Statement in Investing Activities
It involves the purchase of property, equipments and many more things which are required for running of an organization. There is also result of investment gains and losses. This section is where analysts looks to find changes in capital expenditures (capex).
Although only increase or decrease in capex doesn’t tells whether a company is getting profit or not . But generally those companies which have high capex appears to be growing.
Cash Flow Statement in Financing Activities
It can sound similar to the above one but in this there is a complete analysis of how much money a company has paid .Which type of shares are there and how can they be utilized to maximum extent. When we calculate cash flow from financing and if it is a positive number it means the company is gaining profit else if it a negative number there is more money going out from the company then coming in . So there is a need to resolve the situation.