Cash Flow Statement
A cash flow statement is a financial statement that shows how cash entered and left a company during a period, split into operating, investing and financing activities.
The cash flow statement tracks the actual movement of cash. While the income statement can include non-cash items and timing differences, the cash flow statement shows where money really came from and where it went.
It has three sections. Operating activities show cash generated by the core business. Investing activities show cash spent on or received from long-term assets, such as equipment, acquisitions and investments. Financing activities show cash from or to lenders and shareholders, such as borrowing, repaying debt, issuing shares, buying back stock and paying dividends.
The sum of the three sections equals the change in the company's cash balance over the period.
Investors often use the statement to calculate free cash flow, operating cash flow minus capital expenditures. They also check whether a company funds itself mainly from operations, or depends on borrowing or issuing shares.
Example: a company generates $500 million from operations, spends $200 million on investments, and uses $250 million for dividends and debt repayment. Its cash balance rises by $50 million. A company with growing profits but persistently negative operating cash flow may deserve a closer look.