A cash flow statement is a financial statement that shows the income and expenditures of a company for a specific period of time. Companies regularly prepare these statements on a quarterly basis although there are some that put out an annual report for their stockholders. As a holder of common stock on a company it is important that you have an understanding of the cash flow statement to determine whether or not the company is making a profit. The changes that occur on such a statement include a balance sheet, income accounts, a list of assets that could be converted to cash or its equivalent and break down the analysis into three areas: operating, investing and financing. The amount of cash flow a company has will give you a good idea of how well-equipped the company is in its ability to pay its debts.



The balance sheet of a cash flow statement is a bird's eye view of a company's financial resources and its liabilities at any given time. The income statement gives the details of the company's sales or the income generated from its operation. These two facets of the statement are the basis of the accounting system of the company. You will not only see income and expense transactions on such a statement, but you will also see transactions that may or may not be reflected in cash values, such as write-offs in bad debts and depreciation of the assets, such as for the building and the equipment.

There are four main purposes for a statement of cash flow:

- To provide stockholders and others with information about the company's liquidity and solvency and its ability to continue its operations.

- To provide information about changes in the assets and equity

- To improve the ability to compare its operation and performance with that of similar companies

- To give an idea of what future cash flow will look like

The divisions of a cash flow statement are: operating activities, investing activities and financing activities. It is important to be able to understand what each of these elements of the statement tell you about the company. Some of the things you will see included in each of these sections are:

- Operating Activities.

* Sales receipts

* Interest received on loans

* Dividends received on equity securities

* Payments to suppliers

* Payments to employees

* Tax payments

* Interest paid on loans

* Depreciation

* Deferred tax payments

* Mortgage payments

* Profit of loss from the sale of assets

- Investing Activities

* Collections on loan principals

* Investment returns

* Receipts from the sale of real estate or equipment

* Expenses associated with purchasing real estate or equipment

* Loans

* Expenses for purchase of other firms' equity interests

- Investing Activities

* Proceeds from issuing shares

* Proceeds from issuing short or long term loans

* Payment of dividends to stockholders

* Payment for buying back company shares from stockholders

* Repayment of debts

* Receipts of charitable donations