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Glossary

Cash Flow Statement

A cash flow statement is a financial report that summarizes the actual cash coming into and going out of a company over a set period, grouped into operating, investing, and financing activities.

What Is a Cash Flow Statement?

A cash flow statement is one of the three main financial statements a public company publishes, alongside the income statement and the balance sheet. It tracks the movement of cash rather than accounting profit. Because accounting rules let companies record revenue and expenses before or after money changes hands, a company can report a profit while its bank balance shrinks. The cash flow statement shows where the cash actually came from and where it went.

How It Works

The statement divides cash activity into three groups:

  • Operating activities cover cash generated or used by the core business, such as customer payments, supplier payments, wages, and taxes.
  • Investing activities cover cash spent on or received from long-term assets, such as buying equipment or selling a subsidiary, and purchases of other companies' securities.
  • Financing activities cover cash moving between the company and its owners and lenders, such as issuing or repurchasing stock, paying dividends, and borrowing or repaying debt.

The three totals are added together, along with the opening cash balance, to produce the closing cash balance. That figure should match the cash shown on the balance sheet for the same date.

Why It Matters to Investors

Investors often use the cash flow statement to check the quality of reported earnings. A company whose operating cash flow consistently falls below its net income may be booking sales it has not yet collected. Free cash flow, which is operating cash flow minus capital expenditures, is a widely used measure of the cash a business can generate after maintaining its assets. Watching whether a company funds its activities from operations or from new borrowing can also reveal its long-term financial health.

Limitations

The statement is a historical record, so it does not predict future cash flows on its own. Timing can distort a single period: a company may delay payments or collect receivables early at year-end. Comparing several periods and reading the notes that accompany the statement gives a fuller picture.

Updated October 16, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Income Statement

An income statement is a financial report that summarizes a company's revenues, expenses, and resulting profit or loss over a specific period, such as a quarter or year.

Balance Sheet

A balance sheet is a financial statement that lists a company's assets, liabilities, and shareholders' equity at a specific point in time, showing what it owns and owes.

Security

A security is a tradable financial instrument that represents an ownership stake, a creditor relationship, or the right to buy or sell an ownership interest.

Stock

A stock is a unit of ownership in a company, giving the holder a proportional claim on the firm's assets and earnings, and usually some voting rights.

Operating Cash Flow (OCF)

Operating cash flow is the cash a company generates from its regular business activities, excluding money from investing and financing, showing whether core operations produce enough cash to sustain themselves.

Free Cash Flow (FCF)

Free cash flow is the cash a company generates from its operations after paying for the capital expenditures needed to maintain or expand its asset base, leaving cash available for owners and investors.

Accrual Accounting

Accrual accounting is a method of recording financial transactions when they are earned or incurred, regardless of when the related cash is actually received or paid.

Net Income (NI)

Net income is the profit a company keeps after subtracting all its expenses, including operating costs, interest, and taxes, from its total revenue for a reporting period.