What’s a cash-flow statement?
It is a statement of money coming in and going out from a company in a period of time and at a certain final date.
Isn’t that the profit and loss (P&L) statement?
Not really, because a P&L statement records some expenditure and income heads even before they incur or accrue. A cash-flow statement only considers actual transactions.
How’s a cash-flow statement structured?
Pretty much the same way as other financial statements, vertically. It starts with the net profit or loss for the accounting period under consideration, and works back from there, adding back non-cash expenses and those yet to be incurred, and subtracting non-cash gains or income yet to be realized.
Not quite. The additions and subtractions are usually done under three heads. Cash flows from operating activities, which is really everything related to the business of the company; cash flows from investing activities, which is money earned or lost from investments and other treasury activities; and cash flows from financing activities, which is related to share issues and dividend payments, and so on.
So, what do you get at the end of these additions and subtractions?
The number arrived at after these is the net addition or reduction in cash and cash equivalents. This is added to the cash and cash equivalents at the beginning of the period to arrive at the cash and cash equivalents at the end of the period.