A company’s Statement of Cash Flows is a financial statement that shows how the company spends and receives cash over a defined period. A company will also use its Balance Sheet and Income Statement to measure its financial performance. 

The cash flow statement consists of multiple sections:

  • Cash Flows from Operating Activities
  • Cash Flows from Investing Activities
  • Cash Flows from Financing Activities
  • Supplemental Disclosures

The cash flow statement is presented using either the direct or indirect methods. 

  • Direct Method: The statement identifies all cash receipts and disbursements for the company’s operating, investing, and financing activities. Effectively, it examines the activity in each account on a cash basis instead of an accrual basis. 
  • Indirect Method: The company starts with net income/(loss) at the top of the cash flow statement and then reconciles the changes in balance sheet accounts to arrive at the net amount of cash received/spent for the company’s operating, investing, and financing activities. The indirect method is more common and is generally required under Generally Accepted Accounting Principles (GAAP). 

Cash From Operating Activities

The company’s operating activities generally include the amounts used to calculate its income or loss from operations, which includes gross receipts from the sale of goods or services and all related operating expenses.  

Common Operating Activity Items

  • Depreciation, amortization, and impairment
  • Stock-based compensation
  • Deferred income tax expense 
  • Foreign currency transaction net unrealized (gain)/loss
  • Changes in operating assets and liabilities
  • Postretirement claims and contributions

Cash From Investing Activities

The company’s investing activities generally include the sources and uses of cash from its investments, which includes cash used to purchase property, plant & equipment (PPE), and other short-term investments like marketable securities. 

Common Investing Activity Items

  • Purchases of PPE
  • Purchases of marketable securities
  • Purchases of digital assets
  • Proceeds from the sale of digital assets
  • Proceeds from the sale of other assets
  • Business combinations

Cash From Financing Activities

The company’s financing activities include the sources and uses of cash from equity investors and creditors. For example, the company tracks cash inflows from issuing new equity or debt, and cash outflows from debt repayments and dividend payments to shareholders.

Common Financing Activity Items

  • Proceeds from the issuance of stock
  • Proceeds from the issuance of debt
  • Repayment of debt
  • Proceeds from warrant issuance
  • Purchase of treasury stock
  • Dividends paid to shareholders

Supplemental Disclosures

  • Cash paid during the period for interest, net of amounts capitalized
  • Cash paid during the period for taxes, net of refunds