There are three, primary financial statements that enable financial analysis; this information is provided through the cash flow statement by showing how money came into and went out of a company in terms of cash and cash equivalents over an accounting period.
Key Features of Cash Flow Statement
- Activities are segregated into operating, investing, and financing categories to track sources and uses of cash over time
- Non-cash expenses like depreciation are reconciled with net income to gauge true profit-driven cash generation
- Understanding cash flows aids assessment of liquidity, credit risk, profitability, and investment valuation
Example of Cash Flow Statement
A manufacturer’s cash flow exposed an inefficient production process absorbing considerable working capital, highlighting opportunities to optimize inventory management and accounts payable to free up funds for expansion.
Key Takeaways
Integrating cash flow data with balance sheet and income statement analysis delivers deeper financial insight beyond accrual accounting when evaluating an enterprise’s short-term financial flexibility and long-term solvency.