Cash Flow Statement
Explanation: A cash flow statement is a financial statement that provides a summary of the cash inflows and outflows for a company over a specific period. It categorizes cash flows into three main sections: operating activities, investing activities, and financing activities. The cash flow statement helps stakeholders understand how a company generates and uses cash, providing insights into its liquidity and financial health.
Example: A company’s cash flow statement shows $200,000 in cash generated from operating activities, $50,000 used in investing activities (such as purchasing equipment), and $30,000 provided by financing activities (such as issuing new stock). The net increase in cash for the period is $120,000.
Reference Link: For more information on cash flow statements, visit Investopedia’s Cash Flow Statement.
FAQs:
- What are the three sections of a cash flow statement?
- The three sections are operating activities, investing activities, and financing activities.
- Why is the cash flow statement important?
- It provides insights into a company’s liquidity, cash generation, and financial health.
- How does the cash flow statement differ from the income statement?
- The income statement shows profitability, while the cash flow statement shows actual cash inflows and outflows.
- What is the difference between net income and cash flow from operations?
- Net income includes non-cash items such as depreciation, while cash flow from operations adjusts for changes in working capital and excludes non-cash items.
- Can a company be profitable but have negative cash flow?
- Yes, a company can show a profit on the income statement but have negative cash flow if it has high non-cash expenses or significant changes in working capital.