A Statement of Cash Flows (SCF) is a financial statement that provides an overview of a company’s cash inflows and outflows over a specific period of time. It is used to measure a company’s liquidity and solvency, and can be a useful tool for investors, creditors, and business owners.

The statement of cash flows is divided into three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Each section details the cash flows associated with different areas of the business.

Cash flows from operating activities include cash generated from the sale of goods or services, as well as cash spent on expenses related to running the business. This section also includes cash generated from the sale of assets, such as equipment or property, and cash paid for taxes and other liabilities.

Cash flows from investing activities include cash generated from the sale of investments, such as stocks or bonds, as well as cash spent on new investments. This section also includes cash generated from the sale of long-term assets, such as real estate or equipment, and cash spent on new acquisitions.

Cash flows from financing activities include cash generated from the sale of debt, such as loans or bonds, as well as cash spent on repaying debt. This section also includes cash generated from the sale of equity, such as shares or stock, and cash spent on dividends.

Reading a statement of cash flows is relatively straightforward. The statement will show the total cash inflows and outflows for each section, as well as the net change in cash for the period. A positive net change in cash indicates that the company had more cash inflows than outflows, while a negative net change indicates that the company had more cash outflows than inflows.

For example, let’s say a company’s statement of cash flows for the year showed that the company had a net change in cash of $5,000. This would indicate that the company had more cash inflows than outflows, as the total cash inflows were $5,000 more than the total cash outflows.

Additionally, the statement of cash flows will show the sources of the cash inflows and outflows. This can be useful for investors and creditors, as it can provide insight into the company’s operations and financial health.

For example, if a company’s statement of cash flows showed that the company had a net change in cash of $5,000, and the majority of the cash inflows came from the sale of debt, this could indicate that the company is relying heavily on debt to finance its operations.

Understanding a statement of cash flows is an important part of analyzing a company’s financial health. By looking at the sources of cash inflows and outflows, investors, creditors, and business owners can gain insight into the company’s liquidity and solvency.