Cash Flow Statement

Profit and cash are not the same. A company can report a profit and still run short of cash, or report a loss while its cash grows. The cash flow statement shows the actual movement of money.

It is divided into three parts. Operating activities cover cash from the core business, such as receipts from customers and payments to suppliers and staff. Investing activities cover buying and selling long-term assets, such as equipment or other businesses. Financing activities cover borrowing, repaying debt, issuing shares and paying dividends.

For example, a company might generate 800,000 from operations, spend 500,000 on new equipment and repay 200,000 of loans. Its cash would increase by 100,000 over the period.

Investors pay close attention to operating cash flow, because it shows whether the business itself produces cash. A company that consistently relies on borrowing or selling assets to cover operating shortfalls may be in trouble, even if its income statement looks healthy.