Cash flow statements are financial reports that show how cash moves in and out of a business during a specific reporting period. They summarize cash inflows and outflows from operating, investing, and financing activities. These statements are commonly used alongside the income statement and balance sheet to provide a complete picture of financial performance.
Finance teams rely on cash flow statements to understand how cash supports daily operations and long-term investments.
Common uses include:
Cash flow statements are typically divided into three main sections that categorize cash activity.
This section reports cash generated or used through normal business operations. Examples include cash received from customers and payments made to suppliers or employees.
This section records cash related to investments in long-term assets, such as purchasing equipment, selling assets, or acquiring investments.
Financing activities track cash movements related to funding the business, including issuing shares, borrowing money, or repaying loans.
There are different formats and examples of cash flow statements, but they generally follow the same structure of operating, investing, and financing activities.
For example, a simplified cash flow statement may show:
This results in a net increase in cash of $40,000 during the reporting period.
Unlike other financial reports, cash flow these statements focus entirely on cash activity. Key benefits include: