Cash Flow Statement

Definition

The cash flow statement is a financial accounting report that demonstrates how cash flows both into and out of a company.  Cash flow statements provide investors and analysts with insights into the change in cash and cash equivalents in a given accounting period.

Calculation

Net Cash Flow = Cash Flow from Operations + Cash Flow from Investing + Cash Flow from Financing

Note:  While the above calculation shows three additive elements, the cash flow from investing and financing activities are oftentimes negative values.

Explanation

Also known as the statement of cash flows and funds flow statement, a company's cash flow statement connects information that appears on both the balance sheet as well as the income statement.  There are three main categories appearing in this report:

• Operations: begins with net income then adjusts for non-cash expenses such as depreciation, amortization, and deferred income taxes.  Includes changes to balance sheet items such as inventories, accounts receivable, as well as accounts payable and other liabilities.
• Investing Activities:  includes the purchase or sale of assets, capital expenditures, dividends received, and the net change to other investments such as marketable securities.
• Financing Activities:  consists of money received when issuing long term debt, payment of dividends, repurchases or sales of company stock, and repayment of loans.

Companies with foreign operations may also report the effect currency exchange rates have on their cash position.

The cash flow statement helps investors and creditors to gain insights into the liquidity position of a business.  It also provides for a better understanding of the company's true operating performance, since it eliminates the effects of the company's chosen accounting method.

Example

The table below summarizes the information appearing on Company A's cash flow statement:

Net Income	$4,283,000
Depreciation	$1,236,000
Accounts Receivable	-$196,000
Inventory	-$196,000
Other Operating Activities	$157,000
Total Cash from Operating Activities	$5,284,000
Capital Expenditures	-$1,379,000
Investments	-$745,000
Other Investing Activities	-$594,000
Total Cash from Investing Activities	-$2,718,000
Dividends Paid	-$1,555,000
Shares Repurchased	-$1,799,000
Net Borrowings	-$307,000
Other Cash from Financing Activities	-$50,000
Total Cash Flow from Financial Activities	-$3,711,000
Effect of Exchange Rate Changes	-$50,000
Change in Cash and Cash Equivalents	-$1,195,000

Related Terms

financial statements, balance sheet, income statement, cash and cash equivalents, operating cash flow, free cash flow, free cash flow per share