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Cash Flow Statement

The cash flow statement is one of the most important financial statements of any business.

It provides information on all activities of a business, over a period, in which the flow of funds i.e. cash, was involved. This includes cash received by the company (inflow) as well as the cash spent by the company (outflow).

There are three parts of a cash flow statement: Operating, Investing, and Financing.

In other words the cash flow statement records all cash inflows and outflows in a business, over a period of a year or a quarter, via its operating, investing, and financing activities.

Cash flow from operating activities includes cash flow from all transactions in normal business activities.

Cash flow from investing activities includes all cash flow from the company's investments, disinvestments, and the resulting profits/losses.

Cash flow from financing activities includes all cash flow from the company's efforts to raise capital via debt or equity as well as any cash returned to shareholders.

The cash flow statement is very helpful to investors in finding out the intrinsic value of a company's stock.

The sum of all these activities results in the net cash flow. When this number is positive, it means more cash is coming into the company than going out and vice versa.

A negative net cash flow number need not be a bad thing. It could mean the company is paying off debt or has paid a special one-time dividend to shareholders.

It's important to remember that the cash flow statement is to be used along with the other two financial statements - balance sheet and income statement - to properly analyse a business.


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