Lesson #14 - The Third Statement - THE CASH FLOW STATEMENT

The Cash Flow Statement shows us the inflows and outflows of cash that a business or company made over a period or duration of time, e.g. a year (12 months), a quarter (3 months) or a month.

It shows us how much Cash the business or company generated, where the Cash comes from and how the Cash was spent.

The Cash Flow Statement is probably the most important Statement as a business cannot survive without Cash. Although Profits are important and may usually be the focal point, the core engine behind a business is actually Cash.

Cash creates Profits. Profits do not create Cash! As the saying goes - "CASH IS KING!"

The Cash Flow Statement, as its name suggests, is made up primarily of Cash (which is 'obviously' an ASSET).

The Cash Flow Statement is divided into 3 main parts: -

Part 1 - Operating Activities
This part shows the cash inflows generated by and the cash outflows used in relation to activities performed as part of the main principal activities or day-to-day operations of the business.

Part 2 - Investing Activities
This part shows the cash inflows generated by and the cash outflows used in relation to purchase and sale of fixed assets (e.g. machinery, tools, equipment etc) as well as purchase and sale of investments (e.g. shares in the stock market, bonds, treasury notes etc).

Part 3 - Financing Activities
This part shows the cash inflows generated by and the cash outflows used in relation to debt (e.g. loans, bank borrowings) or equity (e.g. cash raised through issuance the company's shares in the stock market).

Here's an example of a Cash Flow Statement.

To wrap it up, here's "All 'Bout the Money" by Meja.

Enjoy!!!