What Online Investors Need to Know About Cash Flow Statements
Don’t make the mistake of ignoring the cash flow statement for companies in which you invesst. This statement cuts through all the smoke and mirrors of accounting to show you how much cold hard cash came into or went out of a company. The statement is divided into the following three parts:
Cash from operating activities tells you how much cash the company used or generated from its normal course of business. This portion of the cash flow statement adjusts net income by adding back expenses that didn’t cost the company cash, most importantly an expense called depreciation that accounts for the cost of wear and tear on equipment.
Cash from investing activities shows how much cash a company uses to invest in new property and equipment, also known as capital expenditures or Cap Ex. The section also shows how much cash the company generates selling assets.
Cash from financing activities illustrates how much cash a company brings onto its balance sheet, mostly by selling bonds.