What is a Statement of Cash Flows?
A statement of cash flows is a financial statement that reports a company's cash inflows and outflows over a specific period of time, such as a quarter or a year. It provides a summary of the cash that is received and spent by a company during that period.
The statement of cash flows is divided into three main sections: operating activities, investing activities, and financing activities.
Operating activities: This section shows the cash inflows and outflows that result from the company's primary business activities, such as sales, purchases of inventory, and payments to suppliers and employees.
Investing activities: This section shows the cash inflows and outflows that result from the company's investments in assets such as property, plant, and equipment, as well as investments in other companies.
Financing activities: This section shows the cash inflows and outflows that result from the company's financing activities, such as issuing and repaying debt, issuing and repurchasing stock, and paying dividends.
The statement of cash flows is an important financial statement that provides insights into a company's liquidity, or its ability to meet its short-term financial obligations. By analyzing the statement of cash flows, stakeholders can assess a company's sources and uses of cash, its cash position, and its ability to generate cash in the future.
Some key metrics that can be derived from the statement of cash flows include net cash flow from operating activities, free cash flow, and cash conversion cycle. These metrics can be used to compare a company's financial performance to that of its competitors or industry benchmarks, and to assess its overall financial health.