💰 What is a Cash Flow Statement?

A clear picture of where a company’s money comes from — and where it goes.

🧾 In Simple Words:

The Cash Flow Statement tells you how much actual cash is flowing in and out of a company.

Even if a company shows profit in its Profit & Loss (P&L) statement, it may not have actual cash in hand. That’s where cash flow becomes critical.

Think of it like your bank statement — it tells you whether you're managing your income, expenses, savings, and loans properly.

A Cash Flow Statement shows how much actual cash a company received and spent during a specific period (quarter/year). It reflects the business's liquidity and financial health, unlike the Income Statement which uses accrual accounting.

The statement is divided into three key sections:

1. Operating Activities – Cash from core business operations (e.g., sales, employee payments).

2. Investing Activities – Cash used for buying/selling long-term assets like property or equipment.

3. Financing Activities – Cash related to capital changes, like issuing shares, taking loans, or paying dividends.

It uses either the:

• Direct method (shows actual cash received/paid), or

• Indirect method (adjusts net profit for non-cash items and working capital changes).

Cash flow statements are mandatory in India under AS-3 and help investors understand how well a company can fund its operations and future growth.

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🧩 Why is Cash Flow Important?

• ✅ You can fake profit with accounting tricks.

• ❌ But you can’t fake cash in the bank.

Healthy cash flow = financially stable company.
Bad cash flow = danger signs, even if the company seems profitable on paper.

🔍 Structure of a Cash Flow Statement

It’s divided into 3 main parts:

Section	What It Tells You	Examples
1. Operating Activities	Cash from core business (sales, services)	Cash received from customers
2. Investing Activities	Cash from buying/selling assets (factories, shares, etc.)	Bought machinery, sold land
3. Financing Activities	Cash from shareholders or loans	Issued shares, paid dividends, took loan

✅ Real Example (India): Infosys Ltd. – FY24 (₹ Crores)

Part	Cash In / (Out)
Operating Cash Flow	₹22,000
Investing Cash Flow	₹(6,000)
Financing Cash Flow	₹(5,000)
Net Cash Flow	₹11,000

🧠 What does it mean?

• Infosys generated a lot of cash from operations, meaning its core business is strong.

• It spent on investments (probably R&D or tech assets).

• It paid dividends and repaid loans (financing outflows).

• Positive net cash = Good financial health.

🌍 Global Example: Apple Inc. – FY24 Q1 (USD Billion)

Part	Cash In / (Out)
Operating Cash Flow	$38.00
Investing Cash Flow	-$18.00
Financing Cash Flow	-$15.00
Net Cash Flow	$5.00

🧠 What does it mean?

• Apple is hugely cash-generating from its products (iPhones, services).

• It’s investing in future technologies and returning cash to shareholders.

• Still ends up with more cash than it spends.

💡 Simple Analogy

Imagine you run a food truck.

Action	Cash Flow Type
Selling burgers	Operating
Buying a new fryer	Investing
Taking a loan to expand business	Financing

Even if you’re profitable on paper, you need actual money to buy supplies, pay staff, and grow. That’s what cash flow tells you.

📉 What Negative Cash Flow Might Mean

Negative From	What It Might Signal
Operating	Business isn't generating enough cash to run
Investing	Could be investing for growth (not always bad)
Financing	May be repaying debts, or not raising new capital

📊 Summary Table: P&L vs Cash Flow

Metric	P&L Statement	Cash Flow Statement
Based On	Accrual Accounting	Actual Cash Movement
Shows	Profit or Loss	Cash Inflows and Outflows
Can Be Manipulated	Yes (through accounting)	Much harder
Key For	Earnings insight	Financial health & survival

 📈 How to Use Cash Flow for Investment Decisions

💡 What to Look For	✅ What It Tells You
Positive Operating Cash Flow	Strong business fundamentals
Free Cash Flow (FCF) growing	Extra cash for dividends or reinvestment
Negative cash from operations	Warning! Company not generating money from core work
Investing heavily?	Check if it’s smart growth (R&D, capacity, acquisitions)
Too much financing?	Check debt levels and repayment risks

✅ Key Cash Flow Ratios:

Ratio	Formula	Why It Matters
Operating Cash Flow Ratio	CFO / Current Liabilities	Can company meet short-term obligations?
Free Cash Flow (FCF)	CFO – Capital Expenditures	Cash left after investing in the business
Cash Conversion Ratio	CFO / Net Income	How well profits convert to actual cash

📌 Final Words from Moat In You

• Never invest by looking at profit alone.

• A company might look shiny in its income statement but be bleeding cash underneath.

• Cash flow tells the truth about how sustainable a company really is.

“In investing, follow the cash — because cash is king.”