bottom line of the cash flow statement shows the net increase or decrease in cash for the period. Generally, cash
flow statements are divided into three main parts. Each part reviews the cash flow from one of three types of
activities: (1) operating activities; (2) investing activities; and (3) financing activities.
first part of a cash flow statement analyzes a company’s cash flow from net income or losses. For most companies,
this section of the cash flow statement reconciles the net income (as shown on the income statement) to the actual
cash the company received from or used in its operating activities. To do this, it adjusts net income for any
non-cash items (such as adding back depreciation expenses) and adjusts for any cash that was used or provided by
other operating assets and liabilities.
second part of a cash flow statement shows the cash flow from all investing activities, which generally include
purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities. If
a company buys a piece of machinery, the cash flow statement would reflect this activity as a cash outflow from
investing activities because it used cash. If the company decided to sell off some investments from an investment
portfolio, the proceeds from the sales would show up as a cash inflow from investing activities because it provided
third part of a cash flow statement shows the cash flow from all financing activities. Typical sources of cash flow
include cash raised by selling stocks and bonds or borrowing from banks. Likewise, paying back a bank loan would
show up as a use of cash flow.