What Is In The Cash Flow Statements?

In my earlier article, I have explained the needs to understand the Cash Flow Statements.


Basically comprise the following:

Closing Cash Balance  (a)

Opening Cash Balance (b)

Net Change of Cash Balance ( c ) = (a-b)

( Cash balance also includes cash equivalent(refer to my earlier article on this)

This Net Change of Cash Balance is represented by:

Net Cash flows from Operations ( normal day-to-day business activities)

Net Cash flows from Investing Activities

Net Cash flows from Financing Activities

Cash Flows From Operating Activities/ Operations

Operating Activities is the normal day-to-day business activities ( making and selling product) of a business.

Examples of Cash Coming In & Going Out from Its Operating Activities:

Receipts from customers

-Cash payments to suppliers and employees

+Cash from interest earned

-Cash paid for interest

-Income tax paid

Cash Flows From Investing Activities

By Investing activities is what the business has invested in property, plant and equipment so as to have the capacity to manufacture its products for sale. Money can be spent for plant, equipment, machinery, premises. However, money also can come in when the enterprise dispose of its unwanted/surplus machinery, equipment and others.

Besides this, the enterprise might have spent money to invest in equity in other companies, invest in shares in public listed companies hence receiving dividend and others. This can be vice versa, when the enterprise sold off its subsidiaries or its other investments.

Examples:Proceeds from sale of assets ( includes property, plant and marketable securities)- Payment for purchase of property, plant and machinery

+ Dividend income

+ Finance income

Investment in an associated company

Cash Flows From Financing Activities

From the financing activities, it reflects what sources of funds the company have received during the period scrutinized- financing from bankers in various forms, or rights issue and share warrants are issued. Also dividend paid to shareholders are also reflected in this category.

Examples:Proceeds from share issue, warrantsNet Proceeds from bankers acceptance

+ Increase in bills payable

-Repayment of hire purchase liabilities

– Finance cost

-Dividends paid


By understanding the cash flow statements, the readers can clearly see how the Board of Directors uses the cash of the company. Has the cash for that period in discussion increase or decrease? What cause the increase Рtoo much investments in another entity or too much purchases of fixed assets for the long term success?

Do remember that Income Statement only shows the profitability of a business, a Balance sheet reflects only the assets and liabilities of the business at a point of time! Both Income Statement and Balance Sheet do not reflect the actual cash used by the business.

Hence, we need to combine the use of Income Statement, Balance Sheet WITH the Cash Flow Statement to have a clear and better understanding of the business.

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