The Cash Flow Statement Explained

The cash flow statement is one of the three core financial statements, alongside the balance sheet and the profit & loss statement. It tracks the actual cash that flowed in and out, which can differ a lot from reported profit.

The three sections

• Operating activities — cash generated (or used) by the core business: receipts from customers, payments to suppliers and staff. The most important section for judging sustainability.
• Investing activities — cash spent on or received from long-term assets: buying equipment (capex), acquisitions, or selling assets.
• Financing activities — cash from or to investors and lenders: raising debt, repaying loans, issuing shares, paying dividends.

Why it matters

Profit can be positive while cash flow is negative (and vice versa) because of accounting timing and non-cash charges. A company that reports profits but never generates operating cash is a red flag. Strong, consistent operating cash flow is the hallmark of a healthy business, and it's the basis of free cash flow.

In the data

Where companies file them, cash-flow line items are carried in the annual financials rows alongside the P&L and balance sheet.