What does a cash flow statement cover?

A cash flow statement specifically provides a detailed analysis of the cash inflows and outflows of a business over a certain period. It categorizes the cash flows into three main activities: operating activities, investing activities, and financing activities. This structure allows stakeholders to understand how cash is generated and spent within the business, which is crucial for assessing the company’s liquidity, solvency, and financial flexibility.

Operating activities detail the cash generated from the core business operations, including revenues from sales and cash expenses. Investing activities reflect cash transactions for the purchase or sale of long-term assets like property, equipment, or investments in other businesses. Financing activities encompass cash flows related to borrowing and repaying debt, as well as transactions with the company’s owners, such as issuing stock or paying dividends. This comprehensive insight into cash management is essential for effective financial decision-making and planning.