Definition

Cash flow statement is one of the quarterly financial reports of any public limited company, used to disclose the company’s financial matters to public and Security Exchange Commission. This statement provides cumulative financial data regarding all the cash flows of the business.

Explanation of Cash Flow Statement

The statement indicates about the company’s cash inflows and outflows and also provides a clean and clear picture of company liquidity. If the profit of a company is tied up in inventory, accounts receivable, and prepaid expenses, the company will face liquidity problems in order to survive and to pay its short term liabilities.

Cash flow statements can be divided into 3 categories: operation, investment, and finance. Operating cash flow relates to the operations of the company, which are day to day business activities. Investing cash flow is related to the investment in the business through purchase or acquires long term assets. Financing cash flow relates the investors and creditors of the company. Cash flow statement is generally considered less critical as compared to income statement and balance sheet, but it can be effectively used to determine the trend in the business performance which is not reflected in other financial statements apparently.