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Cash Flow Statement

The cash flow statement shows how much cash a company generated and spent in operating, investing and financing activities over a period. The cash flow statement tracks money that actually enters and leaves the till, independent of accounting profit.
Contents
  1. 1.Key points
  2. 2.How it works
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key Points

  • It is the best way to spot companies that report profit but generate no cash; it determines debt-service and dividend capacity.
  • Positive and growing operating cash signals a healthy business model, while persistently negative free cash flow signals dependence on external funding.
  • negative free cash flow can be normal during growth investment.

How It Works

cash from operating activities (core business), investing activities (plant purchases, subsidiary sales) and financing activities (borrowing, dividends, capital raises). Free cash flow = Operating cash − Capital expenditure.

Interpretation

Positive and growing operating cash signals a healthy business model, while persistently negative free cash flow signals dependence on external funding. The ratio of operating cash to net profit shows earnings quality; well below 1 may indicate receivable or inventory build-up.

Pitfalls

negative free cash flow can be normal during growth investment. One-off asset sales inflate investing cash. Lease payment classification (IFRS 16) complicates cross-company comparison.

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Frequently Asked Questions

The cash flow statement shows how much cash a company generated and spent in operating, investing and financing activities over a period.

cash from operating activities (core business), investing activities (plant purchases, subsidiary sales) and financing activities (borrowing, dividends, capital raises). Free cash flow = Operating cash − Capital expenditure.

Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy