Cash flow statement

The cash flow statement tracks real cash, not accounting profit. It has three sections. Operating cash flow starts from profit and adjusts for non-cash items such as depreciation and for changes in working capital, like money tied up in unpaid customer invoices or stock. Investing cash flow covers spending on property, equipment and acquisitions, and proceeds from selling assets. Financing cash flow covers borrowing and repaying debt, issuing or buying back shares, and paying dividends. Together they explain the change in the company's cash balance over the period.

Profit can be shaped by accounting choices; cash is harder to disguise. A company whose operating cash flow persistently falls short of its reported profit may be booking sales it has not been paid for, which is a warning sign worth investigating. The statement also shows how a company funds itself, including whether dividends and buybacks are paid from operations or from new borrowing. Subtracting capital expenditure from operating cash flow gives free cash flow, a figure many analysts rely on when estimating what a business is worth.