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How to read a Cash Flow Statement:
The Cash Flow Statement shows a company's profitability at multiple levels over a period of time using CASH ACCOUNTING.
👉 PURPOSE: Track Cash Movement
🔀 SIMILAR TO: Your Checking Account
⏰ TIME: Period of Time
🔢 ACCOUNTING: Cash
⏩ STARTS WITH: Net Income
3 Main sections:
💰 CASH FROM OPERATING ACTIVITIES
All of the cash flows from activities related to operating the business
💰 CASH FROM INVESTING ACTIVITIES
The cash movements from long-term assets
💰 CASH FROM FINANCING ACTIVITIES
The cash from all equity investments and debt from the company
💰 CASH FROM OPERATING ACTIVITIES
Net Income (From the Income Statement)
➕ Non-Cash Changes
➕ / ➖ Changes in Working Capital
= Cash Flow from Operating Activities
💰 CASH FROM INVESTING ACTIVITIES
➖ Capital Expenditures
➖ Acquisitions
➕ Proceeds from the Sale of Investments
= Cash Flow from Investing Activities
💰 CASH FROM FINANCING ACTIVITIES
➕ / ➖ Borrowing / Repaying Debt
➕ / ➖ Issuing / Repurchasing Stocks
➖ Dividends Paid to Shareholders
= Cash Flow from Financing Activities
🔼 Total Change in Cash During Period
➕ Starting Cash Balance
➡ Ending Cash Balance (Sent to Balance Sheet)
💸 FREE CASH FLOW:
Cash Flow From Operation - Capital Expenditures = Free Cash Flow
Was anything confusing? Please let me know below. I'll be happy to explain further.
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