Just like the name suggests, the cash flow statement is a method of documenting the flow of cash in and out of the business. Among other things, the cash flow statement is an easy way to analyze a company’s short-term financial health.
The activities on cash flow statements are organized into three categories:
- Operating activities, which include all transactions having to do with the product or service the company provides, including purchasing raw materials, marketing, and shipping.
- Investing activities, like from the purchase or sale of assets or from the acquisition of another company.
- Financing activities, including cash received from investors as well as cash that flows to shareholders.
Lenders and creditors are especially interested in seeing a company’s cash flow statement because it provides a glimpse into a company’s ability to pay their bills and loan repayments.