A cash flow statement is a document that outlines the inflows and outflows of cash in a company during a specified trading period. Cash flow statements are split into 3 sections;

1. Operating Activities

2. Investing activities

3. Financing activities 

It gives a picture of the use of funds within an accounting period. This can be used by managers to understand business activity and provide explanations for periods of positive and negative cash flow.

It supports an analysis of liquidity. Stakeholders can see how well a company was able to manage their debts and predict how likely they will be able to make payments in the future. They will also be able to see if the company had to sell off any non-current assets to pay short term debts.

Cash flow statements have a relationship to the two other main financial statements. These are the profit and loss account and balance sheet.

There is a difference between cash and profit. Although these are often confused. Profit is the amount of money left from revenue when all operating expenses have been paid. Cash refers to the amount of money available in a business at a point in time. As cash can include borrowed money and investment, it is different to profit.

Sources of finance that have been used to fund the company will be outlined on the statement including the amount, when they were received and any repayments made. This may include loans, share capital and dividends.

Comparisons can be made with previous accounting periods. Analysts can compare liquidity in different years.

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