blog Bonorum et Malorum

13 Things About Cash Flow Statements You May Have Not Known

Written by Fmi.Online

The cash flow statement may not be as popular as its other two counterparts – income statement and balance sheet. Yet, this single instrument can give a peek into one of a business’ most important aspects – whether it has money to pay its expenses and run the business.

So, we’d like to take you through some of the key facts of a cash flow statement.

1. Cash flow statement records the movement of cash in a business:

This statement is created to track how cash and cash equivalents (highly liquid investments with maturity of 90 days or less) move or flow in and out of a company. The result of this movement helps decipher how well can the business pay its debts and expenses. 

2. Cash flow statement contains 3 key parts:

This statement is divided into 3 key segments: 

Cash from Operating Activities: cash inflows and outflows related directly to a business’ primary operations i.e.selling a good or service such as customer receipts, salaries, interest payments, income tax payments etc.

Cash from Investing Activities: incoming or outgoing cash from a company’s investments such as assets (property, equipment, etc.)

Cash from Financing Activities: inflow and outflow of cash from capital used to finance a company’s operations such as payment of bank loan, dividends, etc.

3. Cash flow statement is prepared for a specific period of time: 

Similar to the income statement, the cash flow statement is also created for a particular period such as a month, quarter or year. This is known as the accounting period. Of the three financial statements, only the balance sheet is prepared for a single point in time. 

4. Cash flow statement can be constructed in two ways:

Direct Method:
This is a straightforward method that simply adds all cash inflows from operations such as cash receipts from customers and subtracts all outflows such as cash paid to suppliers, salaries etc. Smaller businesses commonly use this method to calculate their cash flow. 

Indirect Method:
This method starts off with the net income or loss, which is extracted from the income statement and adds to or subtracts from that the implicit cash flows from the balance sheet – which have not yet necessarily been paid or received in cash. Hence, this method is based on the accrual accounting system. 

5. The bottom line shows the change in cash balance:

After a cash flow statement has been prepared, the last line shows the cash balance – the surplus cash left with the company or the negative cash balance (outflow more than inflow). 

6. Positive cash flow doesn’t always equate to profit:

Positive cash flow shows that cash inflow is higher than outflow during a specific period of time. It means the company has excess cash to re-invest, pay off any debt, pay shareholders etc. However, a positive cash flow doesn’t always mean profit. Other accounting expenses such as depreciation, one-time charges, can lead to a negative net income even if the business clocked in positive cash flows in that same period.

7. Negative cash flow doesn’t necessarily mean loss:

A negative cash flow implies that more cash moved out of the business than came in. Yet, this isn’t a definitive measure of a company incurring a loss. It could be a result of more money being injected into the business itself for growth.

8. Net cash flow balance can be derived from and must equal balance sheet difference in that period:

The cash column under the assets section of a balance sheet for two consecutive periods should have the same difference as the cash flow statement balance in that period. This can be used to verify the accuracy of both statements as well. For example, in the below example for Amazon, the balance sheet difference between “Cash Only” from 2021 to 2020 is 36.48 billion – 42.38 billion, which equals negative 5.9 billion. This is the same as the Net Change in Cash for 2021 in the cash flow statement highlighted in the second figure.

9. Cash flow statements are useful to investors:

By reading and interpreting a cash flow statement, investors can understand if the company has enough cash to meet its expenses. A deeper evaluation of each of the heads under a cash flow statement can help them gauge whether the company is simply low on cash because it has invested in itself or because it is actually not profitable.

10. Cash flow statement must be used in tandem with the income statement and balance sheet:

As we already saw in the case of an indirect cash flow statement, its items are derived from the balance sheet and the income statement. Further, you can match elements of the cash flow statement with those in the other two statements and vice-a-versa. We also saw that the net cash flow does not always reflect profit or loss. Hence, to capture a full picture of a company’s financial health, any analyst, investor, or business owner must use all three statements. 

11. Cash flow statement is mandatory to prepare:

Cash flow statement is a financial reporting statement that must be prepared by businesses, as per the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IAS) requirements. 

12. You can use a template to create a cash flow statement:

13. You can learn how to analyse cash flow statements:


More Articles

10 Essential Skills Financial Professionals Need Today

As a result of the predicted global recession, the business environment continues to remain volatile and is more dynamic than ever. As a result, finance professionals who work efficiently, think strategically and can take quick decisions, can pivot as needed. To thrive, professionals must accept and adapt to changing circumstances while responding to opportunities and […]

Read more

The 10 biggest challenges of breaking into investment banking and how to overcome them

Investment banking, being one of the top career choices for fresh graduates, tends to attract many. Fresh out of business school, the allure of a six-figure salary, being immersed in the Wall Street culture, and the prestige of working for one of the world’s oldest business institutions can be enticing. Even if you have a […]

Read more

How to Start Your Dream Career in Private Equity

Have you ever imagined turning a $20 million investment into $50 billion in less than 15 years? That was a mega deal led by Softbank in the early years of Alibaba – one of the most successful Private Equity (PE) deals of all time.  PE is one of the fastest growing industries in the financial […]

Read more

5 Investment Bank(s) You Can Aim to Work for at the Beginning of Your Career

Despite the demanding working style, cut-throat competition, and the long hours involved, investment banking continues to attract tons of job applications every year. An investment banker works with companies on large corporate transactions such as mergers & acquisitions, capital markets, fundraising, IPOs, and investments in general.  But why exactly the gravitation to investment banking? Its […]

Read more

Top 3 Things You Should Know About Swaps

As the name suggests, a swap is a financial exchange agreement in which the involved parties swap pre-agreed cash flows. These flows are typically related to interest payments based on the nominal amount of the swap. Between the two cash flows, one value is always fixed and the other is variable and based on an […]

Read more

Top Three Ways to Launch Your Career at Credit Suisse

Credit Suisse dates back to 1856, when it was originally founded as Schweizerische Kreditanstalt to finance the expansion of the railroad network and boost industrialisation in Switzerland. Over the next century and a half, it would go on to become one of the world’s leading financial powerhouses.  Owing to its reputation, Credit Suisse receives a […]

Read more

How to Land a Dream Role in Investment Banking at CitiBank

CitiBank was founded in 1812 in New York. Today, it is one of the world’s leading banks with their core activities as: safeguarding assets, lending money, making payments, and accessing the capital markets on behalf of their clients.  With over 200 years of experience under their belt, CitiBank is also one of the most coveted […]

Read more

Top three ways to get into Bank of America with no experience

Bank of America is an American multinational investment bank. It is headquartered in North Carolina, U.S. Currently, BoA is the second largest bank in the U.S., the first being JP Morgan Chase. Bank of America is included in the Big Four banks in the U.S., the other being JP Morgan Chase, Well Fargo, and Citibank. […]

Read more

3 horrible mistakes you might be making with financial analysis

Financial analysis is a significant part of all investment banking deals. It refers to the process undertaken to analyse and evaluate projects, companies, or other financial transactions based on their returns, performance, and suitability to the investment bank. Financial analysts have to use multiple analysis techniques like fundamental and trend analysis to derive their conclusions. […]

Read more

10 things your boss wishes you knew about the currency market

The currency market is a platform where participants can come together to buy and sell various currencies. It is also known as the foreign exchange or forex market.  The currency market plays a pivotal role in international trade and resultantly, in the economy. However, not many people know about the currency market and how it […]

Read more
Our Courses are designed to boost your career

Launch your career with Fmi’s Learning Pathway

Choose a learning pathway that best meets your needs and ambitions. Not sure which Fmi learning pathway is right for you? Explore our CareerBuddy videos for help and advice.

Investment banking pathway

Investment banking pathway

Monthly Subscription
  • courses-clock60+ hours
  • courses-desktop9 courses

Investment banking offers many exciting career opportunities for students. From Financial Analysts to Investment Management, and Sales & Trading to a wide range of roles in infrastructure such as IT, Risk or Compliance. This pathway is designed to help you understand the investment banking industry, the roles investment banks are recruiting for, and most importantly, help you to develop the practical skills you need to get into the industry and your preferred role whether this be as part of a school leaver, intern or graduate program.

FMI Online Student join-student-img2 FMI Online Student
55,000+ students currently enrolled
Global markets pathway

Global markets pathway

Monthly Subscription
  • courses-clock70+ hours
  • courses-desktop10 courses

Global markets provide a range of important products and services to corporates, institutions and governments worldwide from executing trades and managing risk to providing quality research content. A key business area in all investment banks, global markets offers a wide range of career paths for students to consider across all functions and at all levels from school leavers to internships through to graduate programs.

FMI Online Student join-student-img2 FMI Online Student
85,000+ students currently enrolled
Asset management pathway

Asset management pathway

Monthly Subscription
  • courses-clock50+ hours
  • courses-desktop8 courses

The asset management industry is a global industry worth over 100 trillion US dollars. It plays a crucial role in managing the assets of retail and institutional investors, offering a wide range of exciting careers in doing so. If you’re looking to forge a career in asset management, our Asset management pathway is perfect for you. We help you build the skills all asset managers are looking for and explore everything you need to know about the industry and the wide range of roles available in the sector

FMI Online Student join-student-img2 FMI Online Student
100,000+ students currently enrolled