Definition
Cash Flow Statement
The cash flow statement reconciles a company's profit to its actual cash movements, split into operating, investing and financing activities.
Because the P&L is prepared on an accrual basis, reported profit can differ greatly from cash generated. The cash flow statement bridges this gap, showing how much cash the business actually produced and where it went.
The three sections, operating, investing and financing cash flow, together explain the change in cash on the balance sheet. Indian companies prepare it under Ind AS 7 (or AS 3), and analysts prize strong operating cash flow as a sign of genuine, cash-backed earnings.
Related terms
- Free Cash FlowFree cash flow (FCF) is the cash a company has left after paying operating expenses and capital expenditure, available to reward investors or grow.
- Operating Cash FlowOperating cash flow is the cash a company generates from its core business operations, before investing and financing activities.
- Investing Cash FlowInvesting cash flow is the cash a company spends on or receives from buying and selling long-term assets and investments.
- Financing Cash FlowFinancing cash flow is the cash a company raises from or returns to its providers of capital, through debt, equity, dividends and buybacks.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.