The cash flow statement is one of four financial statements. The other three financial statements are the income statement, balance sheet, and statement of retained earnings. The cash flow statement shows all cash inflows and outflows a company has. This allows investors to see where money is coming from and where it is being spent.
Unlike the income statement and balance sheet, the statement of cash flow does not show any future incoming or outgoing cash that has been recorded on credit. Cash flow has three parts to it: operations, investing, and financing. The operations portion of cash flow shows how much cash is generated from a company’s product or service that it provides.
Operations reflect changes made in cash, accounts receivable, accounts payable, depreciation, and inventory. Cash flow from investing is associated with changes in equipment, assets, or other investments. This is usually a cash outflow because a company buys new equipment more than they sell equipment. Lastly, cash flow from financing deals with any change in debt, loans, and dividends. Financing can be either a cash inflow or outflow. When a company sells stock there is a cash inflow, but when the company pays these stockholders their dividends there is a cash outflow.
A statement of cash flow is also useful for a company to use to predict future cash flow for budgeting purposes.