Understanding How to Read a Company's Cash Flow Statement
Cash flow statements are an important tool for investors and analysts to understand the financial health of a company. A cash flow statement shows how much cash a company has generated over a given period of time, and how it was used. Knowing how to read a company's cash flow statement is essential for investors and analysts to make informed decisions about the company.
The cash flow statement is broken down into three main sections: operating activities, investing activities, and financing activities. Each section provides information about how the company is generating and using cash.
Operating activities are the day-to-day operations of the company. This section shows the cash generated from sales and other income, as well as the cash used for expenses such as salaries, rent, and other operating costs. The net cash flow from operating activities is the total cash generated from operations minus the total cash used for operations.
Investing activities include the purchase and sale of long-term assets such as property, equipment, and investments. This section shows the cash generated from the sale of assets and the cash used to purchase assets. The net cash flow from investing activities is the total cash generated from investments minus the total cash used for investments.
Financing activities include the borrowing and repayment of debts and the issuance of equity. This section shows the cash generated from taking on debt and issuing equity, as well as the cash used to repay debt and repurchase equity. The net cash flow from financing activities is the total cash generated from financing minus the total cash used for financing.
The cash flow statement also includes a section called the "net change in cash". This section shows the total amount of cash the company has generated or used over the given period of time. It is calculated by taking the net cash flow from all three sections and adding them together.
By understanding how to read a company's cash flow statement, investors and analysts can gain insight into the financial health of a company. They can use this information to make informed decisions about whether or not to invest in the company. It is important for investors and analysts to understand the different sections of the cash flow statement and how they affect the company's overall financial health.