Theme: Cash flow statements

Cash Flow Analysis Basics
Cash flow analysis first requires that a company generate cash statements about operating cash flow, investing cash flow and financing cash flow.

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  Cash from operating activities represents cash received from customers less the amount spent on operating expenses. In this bucket are annual, recurring expenses such as salaries, utilities, supplies and rent.
  
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  Investing activities reflect funds spent on fixed assets and financial instruments. These are long-term, or capital investments, and include property, assets in a plant or the purchase of stock or securities of another company.
  
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  Financing cash flow is funding that comes from a company’s owners, investors and creditors. It is classified as debt, equity and dividend transactions on the cash flow statement.
  

How Do You Perform Cash Flow Analysis?
To perform a cash flow analysis, you must first prepare operating, investing and financing cash flow statements. Generally, the finance team uses the company’s accounting software to generate these statements. Alternately, there are a number of free templates available.
Preparing a Cash Flow Statement
Let’s first look at preparing the operating cash flow statement. The line items that are factored into the company’s net income and are included on the company’s operating cash flow statement include but are not limited to:

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  Cash received from sales of goods or services
  
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  The purchase of inventory or supplies
  
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  Employees’ wages and cash bonuses
  
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  Payments to contractors
  
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  Utility bills, rent or lease payments
  
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  Interest paid on loans and other long-term debt and interest received on loans
  
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  Fines or cash settlements from lawsuits
  

There are two common methods used to calculate and prepare the operating activities section of cash flow statements.
The Cash Flow Statement Direct Method takes all cash collections from operating activities and subtracts all of the cash disbursements from the operating activities to get the net income.
The Cash Flow Statement Indirect Method starts with net income and adds or deducts from that amount for non-cash revenue and expense items.
The next component of a cash flow statement is investing cash flow. That bottom line is calculated by adding the money received from the sale of assets, paying back loans or selling stock and subtracting money spent to buy assets, stock or loans outstanding.
A cash flow statement is a financial statement that shows how cash entered and exited a company during an accounting period. Cash coming in and out of a business is referred to as cash flows, and accountants use these statements to record, track, and report these transactions. 
In this guide, we’ll go over: 

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  Cash Flow Statement Definition
  
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  Cash Flow Statement Components
  
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  Example of a Cash Flow Statement
  
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  How to Prepare a Cash Flow Statement
  
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  Cash Flow Statements vs. Other Financial Statements
  
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  Showing You Understand Cash Flow Statements on Resumes
  
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  A cash flow statement may go by a few different names — CSF, statement of cash flow, SCF, or consolidated statement of cash flows — but each name represents the same thing: a financial statement where a company’s operating, investing, and financing activities are reported in terms of incoming and outgoing money. 
  

Cash moves into and out of a business for various reasons, sometimes unrelated to the direct sale of products, goods, or services. The cash on these financial statements includes current assets, like money in checking and savings accounts, and cash equivalents, like short-term investments. 
Cash flow statements explain how the company manages this cash. For example, a CSF can show if a company is taking on excess financing to fund operations but isn’t generating enough cash to support those debts. 
Creating financial statements is a core responsibility of accountants and a company’s finance team. These finance professionals also utilize cash flow statements and other financial reports to analyze and evaluate a business’s performance. In budgeting, finance teams can look at cash flows from previous accounting periods (e.g., month, quarter, year) to see where they should make spending adjustments. In business strategy, these financial statements can illuminate where a company is overspending and inform changes to the company’s overall approach.
Additionally, certain areas of corporate finance, like investment banking, private equity, and mergers and acquisitions (M&A), rely on these statements as a core part of analyzing and predicting a company’s financial standing. For example, an investment banking analyst may use a company’s cash flow statement when calculating a discounted cash flow (DCF) valuation. Learn how this works in the real world with Bank of America’s Investment Banking Virtual Experience Program. 
A statement of cash flows displays incoming and outgoing money from three types of activities: operating, investing, and financing. Cash flows from operating activities include money spent or generated by selling products, goods, or services. Line items in this section may include: 

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