What Is A Cash Flow Statement

This lesson explains what a cash flow statement is and how it can be used to identify strong companies versus risky companies. The cash flow statement shows where money is being generated and where it is being spent and employed throughout a company. Before 1987, a cash flow statement was not required but now it is necessary to provide more fidelity as to what is happening inside a publicly traded company. The cash flow statement is broken down into three categories: operating activities, investing activities, and financing activities. The first category, operating activities, shows all funds that are flowing into the business, while investing activities and financing activities show where money is being invested and how it is being financed. A positive number in operating activities is desired, while negative numbers in investing activities and financing activities are preferred. A good example of a cash flow statement shows positive operating activities and negative investing and financing activities. A bad example shows decreasing operating activities and positive financing activities. The cash flow statement is an essential document for identifying a company’s financial health.