Cash Flow Statement

Financial flexibility is the ability of the company to react and adapt to financial adversities and opportunities.

The cash flow statement classifies all cash flows of the company into three categories: operating, investing, and financing.

Cash flows from operating activities are those cash flows not classified as investing or financing and generally involve the cash effects of transactions that enter into the determination of net income and, hence, comprise the day-to-day operations of the company.

Cash flows from investing activities are those cash flows from activities associated with the acquisition and disposal of long-term assets, such as property and equipment.

Cash flows from financing activities are those cash flows from activities related to obtaining or repaying capital to be used in the business.

The indirect method emphasizes the different perspectives of the income statement and cash flow statement.

On the income statement, income is reported when earned, not necessarily when cash is received, and expenses are reported when incurred, not necessarily when paid.

The cash flow statement presents another aspect of performance: the ability of a company to generate cash flow from running its business.

The sum of the net cash flows from operating, investing, and financing activities and the effect of exchange rates on cash equals the net change in cash during the fiscal year.