What is a cash flow statement?
A cash flow statement is a financial statement that reports the cash a company generated and spent over a period, grouped into operating, investing, and financing activities.
Introduction to the cash flow statement
A cash flow statement, also called the statement of cash flows, records the actual cash that entered and left a business over a reporting period such as a quarter or a year. It sits alongside the balance sheet and income statement as one of the three core financial statements, and it is the one that tracks real cash movement in place of accounting profit.
The income statement and balance sheet are prepared under accrual accounting, which records revenue and expenses when they are earned or incurred, not when cash actually moves. That means neither directly shows what happened to a company's cash. The cash flow statement fills that gap. It reconciles the change in the company's cash balance over the period and shows where the cash came from and where it went, which is why a profitable company can still show a cash shortfall on this statement.
Publicly listed companies are required to publish a cash flow statement as part of their regular reporting, and lenders and investors typically ask for one when assessing a business. Internally, it informs decisions about spending, financing, and investment.
The three sections of a cash flow statement
Every cash flow statement organizes cash movement into the same three sections. Each covers a different kind of activity, and together they account for the full change in the company's cash over the period.
- Cash flow from operating activities: the cash generated and used by the core business, including receipts from customers and payments to suppliers, employees, and for operating expenses and taxes. This is usually the most closely watched section because it shows whether day-to-day operations produce cash.
- Cash flow from investing activities: the cash spent on and received from long-term assets, such as buying or selling property, equipment, or securities. Sustained cash outflow here often reflects investment in future capacity.
- Cash flow from financing activities: the cash exchanged with the company's owners and lenders, including issuing or buying back shares, drawing or repaying debt, and paying dividends.
Adding the three sections together gives the net change in cash for the period. Adding that figure to the opening cash balance produces the closing cash balance, which ties back to the cash line on the balance sheet.
The direct and indirect methods
There are two ways to present the operating activities section, and the choice affects only that section. The investing and financing sections look the same either way, and both methods arrive at the same operating cash flow figure.
The direct method lists actual cash receipts and cash payments, such as cash collected from customers and cash paid to suppliers. It is more transparent but more work to prepare, because it requires pulling together every operating cash transaction.
The indirect method starts from net income and adjusts it back to a cash figure, adding back non-cash expenses like depreciation and amortization and adjusting for changes in working capital such as receivables, payables, and inventory. Most companies use the indirect method because it draws directly on figures already in the income statement and balance sheet. Both methods are permitted under IFRS and US GAAP.
The same direct-and-indirect distinction appears in forecasting, where it describes two ways of projecting future cash rather than presenting past cash.
How a cash flow statement is prepared
Preparing the statement under the indirect method draws on the other financial statements and follows a consistent sequence.
- Start with net income from the income statement as the top line of the operating section.
- Add back non-cash expenses such as depreciation, amortization, and stock-based compensation, which reduced net income but did not use cash.
- Adjust for changes in working capital, using the comparative balance sheet: an increase in receivables or inventory reduces cash, while an increase in payables increases it.
- Record investing activities, listing cash spent on and received from long-term assets over the period.
- Record financing activities, listing cash raised from and returned to investors and lenders.
- Sum the three sections to get the net change in cash, then add the opening balance to confirm the closing cash balance.
Non-cash transactions that do not move cash, such as acquiring an asset by issuing shares, are disclosed separately in the notes rather than in the body of the statement.
Reading a cash flow statement
The value of the statement is in what the mix of the three sections reveals about the business. Strong operating cash flow shows the core business funds itself. Heavy investing outflows can signal a company building capacity, while investing inflows may reflect asset sales. Financing inflows point to raising capital; financing outflows to repaying debt or returning cash to shareholders.
Comparing operating cash flow against net income is a common check. When the two diverge sharply, it can indicate that reported profit is not converting into cash, which matters because accrual profit is easier to influence through accounting choices than cash is. This is also where the statement connects to other reporting: it complements the financial reporting a company produces and draws on the same underlying records as the general ledger and the month-end close.
How Atlar can help with cash flow reporting
Atlar consolidates cash data from your banks, ERP, and payment platforms into one place, giving finance teams a single, real-time view of the cash moving through the business.
Our cash reporting tools let you build custom reports from real-time data using ready-made templates and a flexible pivot table builder, then save and share them as they update automatically. Bank data stays aligned with confirmed activity through bank reconciliation. Customers including Acne Studios, GetYourGuide, and Forto rely on Atlar as the source of truth for their cash across all banks.
To see how it works, explore our cash management solution or book a demo with our team.
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