Cash Flow Statement
A statement that splits the cash actually coming in and going out into three parts — operating, investing, and financing — where you check whether book profit is real cash.
In plain terms
The cash flow statement is a "bank account transaction record." Profit on the income statement is a figure calculated under accounting rules, so it can differ from the balance in the account, while the cash flow statement counts only cash that actually moved.
It is divided into three sections — ① operating activities (cash earned from the core business), ② investing activities (cash from buying and selling plants, equipment, and stakes), and ③ financing activities (cash from taking on and repaying debt, or paid out as dividends and buybacks). Looking at these three shows at a glance "where the cash came from and where it went."
What it tells you
It shows whether the profit a company earns actually arrives as cash, and where that cash is spent (investment, debt repayment, shareholder returns).
What really matters is whether the profit is genuine. Profit is easy to inflate, but cash in the account is hard to fake. So when operating cash flow diverges from net income for a long time, the quality of earnings is worth questioning.
Formula
Cash flow from operations (cash earned by the core business) + Cash flow from investing (equipment, stakes, disposals) + Cash flow from financing (borrowing, repayment, dividends, buybacks) = Change in cash during the period
What high or low means
When operating cash flow is consistently larger than or similar to net income, it is seen as a healthy state where earnings come in as actual cash.
If profit is reported but operating cash is negative, or the shortfall keeps being covered by debt (financing) or asset sales (investing), that is a signal to look more closely.
"Cash increased" is only half the story on its own. The cash may have grown not from the core business (operating) but from borrowing (financing) or selling assets (investing). Only by looking at the three parts separately can you tell whether the source of that cash is healthy.
Subtracting capital expenditure (CapEx) from operating cash gives free cash flow (FCF), the cash truly free to use. Even if operating cash looks good, nothing is actually left over if capital spending swallows it all.
When working capital such as receivables and inventory increases, that much cash is tied up and operating cash flow falls. Conversely, paying suppliers late can make cash look better temporarily.
Metrics to read alongside
Guides that cover this term
See it in real stocks
Search US stocks on Stocklore to see Cash and other financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.