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A Cash flow statement split into three sections. It shows separately the cash flow from operating, investing and financing activities of the business. The cash flow statement differs from these other financial statements because it acts as a kind of corporate checkbook that reconciles the other two statements. It shows whether all those lovely revenues booked on the income statement have actually been collected. At the same time, however, remember that the cash flow does not necessarily show all the company’s expenses: not all expenses the company accrues have to be paid right away. So even though the company may have incurred liabilities it must eventually pay, expenses are not recorded as a cash outflow until they are paid.
- Operating cash flow is cash received or paid by a company in the course of its regular business during a specific time period. Operating cash flow items will usually have a correspondence to items in the company’s income statement.A strong positive cash flow from operations is a good sign of the company’s health
- Investing cash flows are cash received or paid out by the company associated with investment items. These can be investments in publicly traded securities, investments in other companies or investments in assets such as property or factories. Oftentimes, investing cash flows will not have a corresponding item on a company’s income statement but the changes should show up on a company’s balance sheet.The changes in cash flow form changes in equipment, assets, or investments are revealed here. Cash goes out to buy new equipment. Also cash comes into the company when an asset is sold or divested.
- Financing cash flows shows money received or paid out by the company associated with its capitalization. These items can be related to debt payments or new debt. Dividend payments would show up here. Stock buybacks or the issuance of new stock would also show up here. Most of these items would be unlikely to show up on a company’s income statement (although interest payments would) but would show up on the balance sheet.The financing section shows how borrowing money affects the company’s cash flow.