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Cash Flow Statement

The Cash Flow Statement tracks all cash inflows and outflows, showing how cash moves through your business. Unlike the Income Statement (which includes non-cash items), this shows actual cash movements.

Why Cash Flow Matters​

  • Profitability ≠ Cash: You can be profitable but cash-poor
  • Cash is critical: Need it to pay bills and payroll
  • Timing matters: When cash comes and goes affects survival
  • Lender requirement: Often required for financing

Three Categories of Cash Flow​

1. Operating Activities​

Cash from day-to-day business operations:

Cash Inflows:

  • Customer payments
  • Interest received

Cash Outflows:

  • Payments to suppliers
  • Employee wages
  • Rent and utilities
  • Interest paid

2. Investing Activities​

Cash from buying/selling long-term assets:

Cash Inflows:

  • Sale of equipment
  • Sale of investments

Cash Outflows:

  • Purchase of equipment
  • Purchase of property
  • Investments

3. Financing Activities​

Cash from borrowing and equity:

Cash Inflows:

  • Loans received
  • Owner investments

Cash Outflows:

  • Loan repayments
  • Owner withdrawals
  • Dividend payments

Sample Cash Flow Statement​

ABC Company
Cash Flow Statement
For the Year Ended December 31, 2024

Cash Flow from Operating Activities:
  Cash received from customers       $240,000
  Cash paid to suppliers            ($110,000)
  Cash paid to employees             ($50,000)
  Cash paid for operating expenses   ($40,000)
  Interest paid                       ($5,000)
  Net Cash from Operations                      $35,000

Cash Flow from Investing Activities:
  Purchase of equipment              ($25,000)
  Net Cash from Investing                      ($25,000)

Cash Flow from Financing Activities:
  Owner investment                    $10,000
  Loan received                       $20,000
  Loan repayment                     ($10,000)
  Owner withdrawals                  ($15,000)
  Net Cash from Financing                        $5,000

Net Increase in Cash                            $15,000
Cash at Beginning of Year                       $10,000
Cash at End of Year                             $25,000

Interpreting Cash Flow​

Healthy Business Pattern:​

  • ✅ Positive operating cash flow
  • Negative investing (growth investments)
  • Mixed financing (paying down debt, but may raise capital)

Warning Signs:​

  • ⚠️ Negative operating cash flow
  • ⚠️ Selling assets to fund operations
  • ⚠️ Heavy reliance on financing for operations

Next Steps​

Learn about financial analysis to interpret and use these statements for decision-making.