Cash and the Statement of Cash Flows

The Statement of Cash Flows details all cash inflow and outflows and boils it down to how much cash the company has generated in a given period. Income statement and balance sheets include the future incoming and outgoing cash recorded as credit.

Cash is king and is the blood of a business - it has to flow evenly. Holding plenty of cash is never a bad thing but there are exceptions to this as well. On the other hand, too much outflow in one area is the equivalent of getting shot and seeing blood pour out from the hole. The basic and key idea is that cash is what a company needs to be healthy and generate earnings.

Cash flow is calculated by adding and subtracting certain items to the net income. These adjustments must be made because non-cash items may be included into the net income even though it does not represent any cash in the bank.

What the cash flow statement tells you is simple:

Operations Costs + Asset Investments + Financing = Cash in Hand

Operations costs:

Also called operating cash flow, operations costs show how much spent or made on a daily basis. This includes cash that came in for the period and collections of sales previously made on credit, minus assorted regular expenses. It is the most accurate assessment of how much money you have generated from your core business. Total net cash is a number you want to see growing.

Asset investments:

This section, also called cash flow from investing activities, shows used to sell or buy long-term capital assets for your business. These assets may be equipment, property, machinery, vehicles, furnishings, or investment securities. Over time, you want to see that the business can pay for these investments with income from its operations.


Here you'll find the cash received from or paid to lenders, other creditors, investor(if you have them). For publicly traded companies, this is where cash flow from the sale of stocks and bonds, payment of dividends, or repayment of debt capital is reported.