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Explaining the cash flow statement: definition, real-world examples, analysis

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What is a cash flow statement?

The statement of cash flows, or statement of cash flows, is one of the basic financial statements of a business, which shows its cash expenses and income for a certain financial period. Public companies operating in the United States are required by law to submit a statement of cash flows at the end of each quarter and fiscal year.

Cash flow statement: a real example

Now that you know what a cash flow statement is, let’s look at a real example of a cash flow statement. Here is an example Apple’s cash flow statementor cash flow statement for 2018-2020.

A real example of a cash flow statement is an apple

Source: Apple 10KOctober 30, 2020

The three sections of the statement of cash flows are the classification of cash flows

1. Cash flow from operating activities

As shown in Apple’s cash flow statement below, cash flow from operating activities is the first section of the statement. Operating activities and cash from operations are related to the production and sale of the company’s goods and services.

operating activities in the statement of cash flows

Source: Apple 10KOctober 30, 2020


Finbox Note: While US GAAP requires companies to report interest paid/received as an operating activity, IFRS companies may classify interest paid as an operating or financing activity and interest received as an investing or financing activity .

2. Cash flow from investment activities

The second section of the statement of cash flows consists of cash flows from investing activities, which are related to the purchase or sale of long-term assets and other securities.

As shown in Apple’s statement of cash flows below, examples of cash from investing activities include payments for the purchase of property, plant and equipment (PP&E), proceeds from the sale of marketable securities and other financial securities.

investing activities in the statement of cash flows

Source: Apple 10KOctober 30, 2020

3. Cash flow from financial activities

Cash flow from financing activities is the last section of the report. Financing activities consist of cash flows that affect a company’s capital or debt structure, such as the issuance of common stock or debt. As shown in Apple’s statement below, share repurchases and dividend payments are also included in cash flow from financing activities.

cash flow statement financial activity

Source: Apple 10KOctober 30, 2020


Finbox Note: While US GAAP requires companies to report dividends paid as a financing activity, companies operating under IFRS can classify dividends paid as an operating or financing activity.

Statement of Cash Flows: Direct Vs. Indirect method

Companies can choose to report cash flows using either the direct or indirect method. The difference concerns the design of the operating activities section. The financing and investing sections are identical.

With the direct method, cash flows from operating activities are presented as a simple list of cash flows. In contrast, the indirect method starts with net income and adjusts the result by adding non-cash expenses and subtracting non-cash profits. Despite the different types of calculation, cash flows from operations will be the same in both methods.

Infographic of direct and indirect method of cash flow statement

Why is the statement of cash flows important?

One of the most important points that investors should always keep in mind is that not all returns are created equal. As discussed in this lesson about Sloan’s coefficientThe most important accounting and finance boards require companies to report their income and expenses on an accrual basis.

Under the accrual method, companies record revenues and expenses when transactions occur, not when they receive or deliver cash. Thus, a firm’s net income includes many accruals that are non-cash gains.

As you can imagine, if a company doesn’t get money, it won’t have money to invest and grow. The cash flow statement is very important because it allows investors to analyze a company’s true profitability.

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