What Is a Cash Flow Statement?

The cash flow statement shows how money flows through an organization. The statement of cash flows is the third most important financial statement that any publicly traded company must make available to investors. The other two are the balance sheet and the income statement. It is usually checked by an independent accountant and put into annual and quarterly reports.

On the cash flow statement, things like depreciation that don't involve cash don't show up. This makes it useful for figuring out the company's short-term health, especially its ability to pay bills. The ability of a company to make money is one of the most important things to look for in a possible investment. Even if it shows a profit on the income statement, that doesn't mean it's making enough money. When investors look closely at the currency flow statement, they can get a better idea of how the company makes money and pays its bills.

Cash Flow Statement Parts

The cash flow statement is divided into three sections: money from operations, cash from investments, or after Zodiac casino sign up, and currency from financing. Any number with a negative sign means money is leaving the business (like when it buys supplies), while any number with a positive sign means money is coming into the business (such as currency collections from customers or taking out a loan).

Cash from operations is the money that a business makes by running its day-to-day operations. This includes all the money that comes in and goes out as a result of the work that the company was set up to do. Most publicly traded companies show this section by adjusting their net income to take out non-cash activities like depreciation, amortization, and adjustments for accounts payable and receivable, among other things.

Cash from investments includes both the money used to buy assets and the profits made when other businesses, equipment, or other long-term assets are sold. Investing is the act of buying property, plants, equipment, and other assets that can be used to make money. In general, investing could be thought of as anything on the balance sheet that is listed as a long-term asset.

Cash from financing is money that comes from lending or borrowing money, like the money from a loan or the finances raised in a debt offering. This section may also list dividends paid, though this is sometimes listed under "cash from operations."

Ratios and Metrics That Can Help

Analysts often use the money flow statement to help them figure out how healthy a company's finances are by calculating a number of useful ratios. The following are some of the most common metrics:

Operating cash flow/sales compare a company's operating finances to its net sales or revenues. It shows how well the company is at turning sales into cash, or, in other words, how well it is at getting money from people who owe it finances. If sales go up, but operating currency flow doesn't go up at the same rate, it could mean that uncollectable receivables will have to be written off in the future.

The ratio of operating cash flow to current liabilities shows how liquid a company is in the short term, or how well it can pay its short-term debts. If the operating cash flow ratio is less than 1, it means that the company isn't making enough money to pay off its short-term debt. This could be a serious problem that could stop the business from running.