6.16What is a Cash Flow Statement?
1What is it?
The cash flow statement shows actual cash coming in and going out, split into operating, investing and financing activities.
2Why does it exist?
Profit can be an accounting number; cash is real. A company can show profit but run out of cash if customers don’t pay.
3Diagram
Cash flow statement
Operating (CFO)
- • Cash from the core business
- • Should be positive
Investing (CFI)
- • Buying/selling assets
- • Usually negative in growing firms
Financing (CFF)
- • Loans, repayments, dividends, buybacks
4Practical use
A healthy sign: operating cash flow close to (or above) net profit, year after year.
5Quick revision
- Shows real cash movements.
- Three parts: operating, investing, financing.
- CFO should broadly match profit.
6Knowledge check
Q1. Name the three cash flow sections.Show answer
Operating, investing, financing.
Q2. Profit ₹100 cr but CFO −₹50 cr for years. Concern?Show answer
Yes. Profits are not turning into cash.
Q3. Paying dividends appears in which section?Show answer
Financing.