What is an Cash Flow Statement

It is said that ‘never judge a book by its cover’. However, a company can always be judged by its financial statements. The financial statements of a company are like a window to all its happenings. They not only present the profitability as well as working status but all highlight the future goals and aspirations. Therefore, the first judge to the success of any company shall always be its financial statements. Financial statements basically comprise of three statements: Balance sheet, Income statement and cash flow statement. Apart from these, other additional statements that are also a part of the group are Changes in equity and Notes to Accounts.

Cash Flow Statement is the last major segment in financial statements. The main purpose here is to report the generation of cash and where it is being used. It is like a cash ledger; but, the activities are divided into three categories, i.e. Operating, Investing and Financing. Operating activities include all the day to day activities where the cash is used and is required for business operations. All notional expenses which are non-cash in nature but are of recurring nature are also, taken into consideration. Investing activities include the purchase of assets such as land & building, machinery, equipment, etc. It also includes bringing cash by selling these assets. Financing activities involve issuing and buyback of shares, dividends received or paid or any other activities undertaken for financing the business. In the end, the net balance from all the three heads is added up to find the cash balance at the end of the financial year and should tally with the cash balance.

Therefore, summing this up, financial statements give us a three-dimensional view of a company’s existing position and is a report card for its performance.