Cash flow statement

It is the one of the most important and main financial statement of a business entity. The cash flow statement represents the inflow and outflow of cash and cash equivalents due to the operating, investing and financing activities of a business

Operating activities 
Operating activities are day to day business operations. For example  repayment of creditors, receipts from debtors (or change in debtors and creditors), changes in stock or inventories, payment of expenses,

Investing activities
Investing activities are the firm or company’s investments in long term asset which affects the firm’s capability to earn revenue in future for a longer period of time. For example Acquisition of fixed assets and sale of fixed assets

Financing activities 
Financing activities are those activities which affect equity (capital) and long term loans of a firm. In other words investing activities affects the financial structure of a firm e.g. these activities can increase amount the equity of a firm or vise versa and these activities can increase the amount of term loans which have been borrowed by the firm or vise versa. For example injection of fresh capital by owner, retirement of long term loan, Proceeds from long-term debt sales, issuance of dividends, repurchase of stock or shares, proceeds from new stock issue

Purposes or uses of cash flow statement

Internal uses

  • Cash flow statement is used by the firm to plan and evaluate potential financial opportunities 
  • Cash flow statement is used to understand the analyze the creditors or lender perception about the firm 
  • Cash flow statement is helpful in determining how efficiently the firm uses its assets to generate cash

External uses
  • Short term lenders or creditors want to know the liquidity of firm (operating activities)
  • Bondholders want to know the long term cash inflow and outflow of firm (investing activities)
  • Shareholders focus on the profitably of firm 
it is used by employees of company to find out the financial health of a company, government and other stakeholders

Remember That:
Cash flow statement takes only receipts and payments of cash, it don't take into account the accounting profits or losses. For example deferred taxes, depreciation expenses, profit or loss on sale of fixed asset etc.