Short definition: A cash flow statement is a financial statement that reports the sources and uses of cash by a company during a specific period.
Explanation: It summarizes how much cash a company generated from its operations, investments, and financing activities. This statement helps investors and creditors understand how a company manages its cash, its ability to pay bills, and its need for external financing.
Example: The cash flow statement is divided into three sections: operating activities, investing activities, and financing activities. Operating activities show the cash flow from the company’s core business operations, while investing activities show the cash flow from the purchase or sale of assets. Financing activities show the cash flow from issuing or repurchasing stock, as well as borrowing or repaying debt.
Additional information (optional): The cash flow statement is one of the three core financial statements, along with the balance sheet and income statement. It is considered to be a more reliable indicator of a company’s financial health than the income statement, as it focuses on actual cash transactions rather than accrual accounting.