How to read a cash flow statement?

A cash flow statement is a financial statement that provides details on the money flowing into and out of a business during a given time period. It demonstrates a company’s ability to operate in the short and long term, based on how much cash is flowing into and out of the business. A cash flow statement is typically divided into three sections:

1. Cash flow from operating activities

This section details the cash flow that is generated once the company delivers its regular goods or services, and includes both revenue and expense. It shows the company’s ability to generate consistent positive cash flow from operations.

2. Cash flow from investing activities

Investing activities include cash flow from purchasing or selling assets, 

such as physical property, real estate, and non-physical property, like patents. Generally, this section takes some of its cash and reinvests it to help fuel growth and/or generate revenue.

3. Cash flow from financing activities

This section measures the flow of cash between a firm and its owners and creditors. Negative numbers can mean the company is servicing debt, but they can also mean the company is making dividend payments and stock repurchases, which will satisfy investors.

Cash flow statements are designed to provide insight into the financial health and status of an organization. For example, it can reveal what phase a business is in: whether it’s a rapidly growing startup or a mature and profitable company. It can also reveal whether a company is going through a transition or into decline.