The statement of cash flows is one of the three core financial statements, showing how cash moved through a business by operating, investing and financing activities.
The statement of cash flows reconciles the change in a business's cash over a period, sorted into three activities: operating (cash from core operations), investing (buying and selling assets), and financing (borrowing, repaying, equity and dividends). It explains why a profitable business can still be short of cash, and vice versa.
Because profit under accrual accounting includes non-cash items and timing differences, the cash flow statement is where the real movement of money is revealed. Lenders and investors read it to judge whether operations actually generate cash, the ultimate test of sustainability.
A company reports $50,000 profit but its cash fell. The cash flow statement shows why: $80,000 went into new equipment (investing) and receivables grew, tying up cash that the profit figure alone did not reveal.
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