Statement of cash flows

Definition

A statement of cash flows is a financial report that provides detailed information about a company's cash inflows and outflows over a specific period. It helps stakeholders understand the company's liquidity, solvency, and overall financial health.

5 Must Know Facts For Your Next Test

1. The statement of cash flows is divided into three sections: operating activities, investing activities, and financing activities.
2. Operating activities detail cash transactions involved in running the day-to-day business operations.
3. Investing activities include cash flows related to the acquisition and disposal of long-term assets like property and equipment.
4. Financing activities cover transactions involving debt, equity, and dividends.
5. The statement of cash flows helps in assessing a company’s ability to generate future cash flow, pay dividends, and meet obligations.

Review Questions

• What are the three main sections of the statement of cash flows?
• How do investing activities differ from financing activities on the statement of cash flows?
• Why is the statement of cash flows important for evaluating a company's financial health?

Related terms

Income Statement: A financial document that shows a company's revenues, expenses, and profits over a specific period.

Balance Sheet: A snapshot of a company's financial position at a specific point in time showing assets, liabilities, and shareholders' equity.

Cash Flow Forecasting: The process of estimating future cash inflows and outflows to ensure that an organization has sufficient liquidity to meet its obligations.