Cash Flow Statement: What It Is and Examples

Understanding cash flow statements is important because they measure whether a company generates enough cash to meet its operating expenses.

What Is a Cash Flow Statement (CFS)?

A cash flow statement, also known as a statement of cash flows, is a financial statement that shows the flow of cash into and out of a company during a specific period of time. It provides insights into how a company generates and uses its cash, which is crucial for assessing its financial health.

How the Cash Flow Statement Is Used

The cash flow statement is used by investors, creditors, and other stakeholders to evaluate a company's ability to generate cash, its liquidity, and its overall financial performance. It provides important information that is not available from other financial statements, such as the income statement and balance sheet.

Structure of the Cash Flow Statement

The cash flow statement is divided into three main sections: cash from operating activities, cash from investing activities, and cash from financing activities. Each section captures different types of cash flows and provides insights into different aspects of a company's operations.

How Cash Flow Is Calculated

Cash flow is calculated by starting with the net income from the income statement and making adjustments for non-cash items and changes in working capital. The resulting cash flow figure reflects the actual cash generated by the company during the period.

Limitations of the Cash Flow Statement

While the cash flow statement is a valuable tool for assessing a company's financial health, it does have some limitations. For example, it does not provide information about the quality of a company's earnings or its ability to generate future cash flows. It also does not take into account non-cash items, such as depreciation and amortization.

Cash Flow Statement vs. Income Statement vs. Balance Sheet

The cash flow statement is often compared to the income statement and balance sheet, but they serve different purposes. The income statement shows a company's revenue, expenses, and net income over a specific period, while the balance sheet provides a snapshot of a company's assets, liabilities, and shareholders' equity at a specific point in time.

Example of a Cash Flow Statement

Here is an example of a cash flow statement:

Cash Flow from Operating Activities: $10,000
Cash Flow from Investing Activities: ($5,000)
Cash Flow from Financing Activities: ($2,000)
Total Cash Flow: $3,000

What Is the Difference Between Direct and Indirect Cash Flow Statements?

The cash flow statement can be prepared using either the direct method or the indirect method. The direct method reports cash flows from operating activities by directly listing the cash receipts and cash payments, while the indirect method adjusts the net income for non-cash items and changes in working capital to arrive at the cash flow from operating activities.

Is the Indirect Method of the Cash Flow Statement Better Than the Direct Method?

There is no definitive answer to this question. Both the direct method and the indirect method have their advantages and disadvantages. The direct method provides more detailed information about the cash flows, while the indirect method is easier to prepare and is more commonly used.

What Is Included in Cash and Cash Equivalents?

Cash and cash equivalents include cash on hand, demand deposits, and short-term investments that are highly liquid and can be easily converted into cash. They represent a company's available cash resources that can be used to meet its current obligations.

The Bottom Line

The cash flow statement is an essential financial statement that provides insights into a company's ability to generate cash and meet its operating expenses. It is used by investors, creditors, and other stakeholders to assess a company's financial health and make informed decisions. Understanding the definition and importance of a cash flow statement is crucial for anyone involved in financing and financial analysis.

Cash Flow Financing: Definition, How It Works, and Advantages

Cash flow financing is a form of financing in which a loan made to a company is backed by the company's expected cash flows. It provides a company with the necessary funds to meet its short-term cash needs and fund its day-to-day operations.

What Is Cash Flow Financing?

Cash flow financing, also known as cash flow-based lending, is a financing method that focuses on a company's ability to generate cash rather than its collateral or creditworthiness. It is commonly used by small and medium-sized businesses that may have limited assets or a short credit history.

Understanding Cash Flow Financing

Cash flow financing works by assessing a company's cash flow statement and projecting its future cash flows. Based on these projections, a lender determines the amount of financing that can be provided to the company. The loan is typically repaid using a portion of the company's future cash flows.

The Cash Flow Statement

The cash flow statement plays a crucial role in cash flow financing. It provides the necessary information about a company's past and projected cash flows, allowing lenders to assess its ability to generate cash and meet its financial obligations. A strong cash flow statement increases the likelihood of obtaining cash flow financing.

Projecting Cash Flows

When projecting cash flows for cash flow financing, a company needs to consider its historical cash flow performance, its industry trends, and any anticipated changes in its operations. Accurate cash flow projections are important to ensure that the company can meet its debt service requirements and maintain its financial stability.

Cash Flow Loan vs. Asset-backed Loan

A cash flow loan is different from an asset-backed loan, which is secured by specific assets, such as inventory or accounts receivable. Cash flow financing is based on a company's ability to generate cash from its operations, while asset-backed financing relies on the value of the pledged assets.

What Are the 3 Types of Cash Flows?

The three types of cash flows are cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Cash flows from operating activities represent the cash generated or used by a company's core operations, while cash flows from investing activities reflect the cash used for or generated from investments in assets. Cash flows from financing activities show the cash flows related to the company's financing activities, such as debt issuances, repayments, and equity transactions.

Are Cash Flow and Profit the Same Thing?

No, cash flow and profit are not the same thing. Profit, also known as net income, is a measure of a company's profitability and is calculated by subtracting expenses from revenue. Cash flow, on the other hand, is a measure of a company's cash generation and is calculated by adjusting profit for non-cash items and changes in working capital.

What Is the Benefit of Cash Flow Financing?

The benefit of cash flow financing is that it provides companies with the necessary funds to meet their short-term cash needs and fund their day-to-day operations. It is particularly useful for small and medium-sized businesses that may have limited assets or a short credit history. Cash flow financing allows these businesses to access the capital they need to grow and succeed.

The Bottom Line

Cash flow financing is a valuable financing method that focuses on a company's ability to generate cash. By using a company's cash flow statement to assess its financial health and projecting its future cash flows, lenders can provide the necessary funds to support the company's operations. Cash flow financing is particularly useful for small and medium-sized businesses that may not have significant assets or a long credit history. It provides them with the capital they need to meet their short-term cash needs and fuel their growth.

What is Cash Flow From Financing Activities? (CFF) - Finmark

Cash flow from financing activities is a section of the cash flow statement that shows the cash flows related to a company's financing activities. It includes cash flows from debt and equity issuances, repayments, and other financing transactions.

What Is Cash Flow From Financing Activities?

Cash flow from financing activities represents the cash flows related to a company's financing activities, such as issuing debt or equity, repaying debt, and paying dividends. It shows how a company raises capital and how it uses that capital to finance its operations and growth.

What Cash Flow From Financing Activities Tells You About Financial Health

Cash flow from financing activities provides insights into a company's financial health and its ability to raise capital and manage its debt. Positive cash flow from financing activities indicates that a company is able to generate cash from its financing activities, which can be used to support its operations and fund its growth. Negative cash flow from financing activities, on the other hand, may indicate that a company is relying heavily on external financing to support its operations.

How To Calculate Cash Flow From Financing Activities

Cash flow from financing activities is calculated by summing the cash inflows and outflows related to a company's financing activities. Cash inflows include proceeds from debt issuances, proceeds from equity issuances, and other financing inflows. Cash outflows include repayments of debt, payments of dividends, and other financing outflows.

Positive vs. Negative Cash Flow From Financing Activities

A positive cash flow from financing activities indicates that a company is generating cash from its financing activities, which can be used to support its operations and fund its growth. It is generally seen as a positive sign of financial health. On the other hand, a negative cash flow from financing activities may indicate that a company is relying heavily on external financing to support its operations.

Keep On Top Of Cash Flow From Financing Activities

It is important for companies to keep track of their cash flow from financing activities to ensure that they have the necessary funds to meet their financing obligations and support their operations. By monitoring their cash flow from financing activities, companies can make informed decisions about their capital structure and financing options.

Related metrics

There are several related metrics that can provide further insights into a company's financing activities, such as its debt-to-equity ratio, interest coverage ratio, and return on equity. These metrics can help investors and analysts assess a company's financial health and its ability to generate returns for its shareholders.