A Cash Flow Statement is a financial statement that shows the flow of cash in and out of the business.
The Cash Flow Statement is particularly useful for investors and lenders to determine the short-term viability of a company with respect to its ability to pay its debts.
In the statement, money coming in to the company is referred to as “cash inflow”, and money going out from the business is referred to as “cash outflow.”
Components of a Cash Flow Statement
The Cash Flow statement is divided into three segments:
- Cash flow resulting from operating activities
- Cash flow resulting from investing activities
- Cash flow resulting from financing activities.
1. Operating activities
It includes the production, sales and delivery of the company’s final product. Collecting payments from its customers are also included. Examples of specific operating cash flows include:
- Cash received from the sale of its final product.
- Cash received from interest on loans.
- Dividends received on it’s stock.
- Payments to suppliers for raw materials.
- Payments to employees
2. Investing Activities
Includes:
- Cash used in the purchase or sale of an asset (example, building, equipment, land).
- Cash used in the form of loans to suppliers.
- Cash used in order to finalize a merger or acquisitions with another company.
3. Financing activities
Includes the inflow of cash from investors, as well as the outflow of cash to investors in dividend forms. Other activities which will appear in the financing activities section include:
- Cash received from issuing debt.
- Cash used for repurchase of company shares.
- Cash used to repay debt.
- Cash used as repayment for debt.
What does a Cash Flow Statement look like?
Below, you can see an example of a Cash Flow Statement. As you can see, it is divided up into the three categories:
| In Millions of USD (except for per share items) | 12 months ending 2010-12-31 | 9 months ending 2010-09-30 | 6 months ending 2010-06-30 | 3 months ending 2010-03-31 |
| Net Income/Starting Line | 8,505.00 | 5,962.00 | 3,795.00 | 1,955.00 |
| Depreciation/Depletion | 1,067.00 | 787.00 | 530.00 | 264.00 |
| Amortization | 329.00 | 228.00 | 143.00 | 67.00 |
| Deferred Taxes | 9.00 | 23.00 | -4.00 | -13.00 |
| Non-Cash Items | 1,270.00 | 930.00 | 571.00 | 281.00 |
| Changes in Working Capital | -99.00 | -375.00 | -366.00 | 30.00 |
| Cash from Operating Activities | 11,081.00 | 7,555.00 | 4,669.00 | 2,584.00 |
| Capital Expenditures | -4,018.00 | -1,473.00 | -715.00 | -239.00 |
| Other Investing Cash Flow Items, Total | -6,662.00 | -6,358.00 | -2,570.00 | -3,185.00 |
| Cash from Investing Activities | -10,680.00 | -7,831.00 | -3,285.00 | -3,424.00 |
| Financing Cash Flow Items | 94.00 | 43.00 | 31.00 | 12.00 |
| Total Cash Dividends Paid | – | – | – | – |
| Issuance (Retirement) of Stock, Net | -507.00 | -866.00 | -800.00 | -135.00 |
| Issuance (Retirement) of Debt, Net | 3,463.00 | 2,121.00 | – | – |
| Cash from Financing Activities | 3,050.00 | 1,298.00 | -769.00 | -123.00 |
| Foreign Exchange Effects | -19.00 | 37.00 | -100.00 | -43.00 |
| Net Change in Cash | 3,432.00 | 1,059.00 | 515.00 | -1,006.00 |
| Cash Interest Paid, Supplemental | – | – | – | – |
| Cash Taxes Paid, Supplemental | 2,175.00 | 1,954.00 | 1,309.00 | 179.00 |
Source: http://www.google.com/finance?fstype=ii&q=NASDAQ:GOOG
Conclusion
The cash flow statement is normally the final document prepared in a company’s financial report. The document contains information that is a “follow up” of information contained in the income statement and balance sheet.
Analysts, investors, financial lenders use the reports to assess the financial standing of a company to determine the suitability of investment or lending cash for future operations.
A side by side comparison of current cash flow results to those of previous periods, as shown above allows an individual to determine whether receivables have increased or decreased.
Proper understanding of a cash flow statement allows an investor to gain a better knowledge of the business.
This investor should recognize that healthy companies should demonstrate an increase in cash flow over time.
Also, an investor should understand that new company’s can experience decreasing cash flow and understand that this may not be indicative of the business going under.
Most importantly, the cash flow statement provides the most precise summary of the amount of cash going outside of the company, and the amount of cash coming in.