A company's cash flow statement provides detailed information about the cash the company had at the beginning of the year, what cash remains at the end of the year, and how cash was generated and used throughout the year. This statement is divided into three main sections: 1. Beginning and Ending Cash Balances
- The statement starts by showing the cash and cash equivalents the company had at the beginning of the year.
- After accounting for all cash inflows and outflows during the year, it shows the ending cash balance at year-end, reflecting the net change in cash over the period
2. Sources and Uses of Cash During the Year
Cash flow activities are categorized into three types, each explaining where
cash was generated or used:
- Operating Activities:
This section shows cash generated from the company’s core business operations, such as sales revenue collected from customers, interest and dividends received, and cash paid for operating expenses like payroll, inventory purchases, rent, and taxes. It reflects the company's ability to generate cash from its normal business activities
- Investing Activities:
This includes cash used for or generated from buying or selling long-term assets like property, equipment, or investments. Cash outflows here often represent purchases of assets to support growth, while inflows may come from asset sales or loan repayments. Negative cash flow in investing activities can indicate investment in future growth
- Financing Activities:
This section details cash flows related to raising capital or repaying investors and creditors. It includes cash inflows from issuing shares or borrowing and outflows such as dividend payments, debt repayments, or stock buybacks. This section reflects how the company finances its operations and returns value to shareholders
Summary
The cash flow statement reconciles the beginning cash balance with the ending
balance by adding net cash flows from operating, investing, and financing
activities. A positive net cash flow means the company increased its cash
position during the year, while a negative net cash flow means cash decreased
. This detailed breakdown helps stakeholders understand not just how much cash the company has, but also the sources of cash inflows and the uses of cash outflows throughout the year, providing insight into the company’s liquidity, financial health, and operational efficiency
