Definition:

Cash Flow statement is a snapshot of a company’s sources and uses of cash over a set period of time. It is normally produced as a set of statements alongside the Income Statement, and balance sheet. It will be produced annually or quarterly for investors, and more frequently for management.

Example:

It records money coming into the business from customers paying invoices, the company selling assets, or investors providing funds.

It records cash leaving the business to pay bills, make investments, or to reward shareholders.

Why it matters:

The cash flow statement is vital in understanding how cash is entering or leaving a business, and if it will have enough to survive without raising external sources of funds. It provides different information to an income statement, since even a profitable company may be consuming cash, particularly when growing rapidly, or investing in long term assets.