What Does a Cash Flow Statement Consist Of?

A company's statement of cash flow provides insight into the various methods, tactics and tools that department heads rely on to run efficient, solvent and profitable operations. The report has three sections that financial managers report in the following order: cash flow from operations, cash flow from investing activities and cash flows from financing activities.

Operating Cash Flows

Operating cash flows tell the tale of prowess and efficiency in the way corporate middle management coordinates daily activities, settles commitments, ensures a smooth operation and helps the business generate more cash over time. These flows touch on everything from cash doled out for salaries and bill payments to customer remittances, service-provider obligation settlements and insurance premium payments. Given the importance of operating cash movements, corporate leadership may establish liquidity procedures to guide disbursement activities. These policies generally are notable for their focus on money-making activities, clarity of content and operational use. The main goal is to give department heads the necessary tools to rein in waste and use company money effectively.

Investing Cash Flows

Cash flows from investment activities include sales and purchases of long-term assets, such as equipment, computer hardware and residential buildings. Investors often delve into this section of a statement of cash flows to figure out how much a business spent on tangible resources during the period under review. Tangible resources, long-term assets, capital resources and "property, plant and equipment" accounts mean the same thing. Land is the only PPE account that is not subject to depreciation, which is the mechanism that enables a company to allocate a tangible asset's cost over several years.

Financing Cash Flows

Financing cash flows pertain to fundraising efforts a publicly traded company undertakes to fill its coffers, to get the necessary cash to soldier on competitively and to invest in strategically judicious initiatives to make more money down the road. A company's senior leaders hold fundraising talks as soon as department heads signal a decrease in operating funds because they know that not fixing liquidity questions earlier and kicking the can down the road could ultimately cost the company more. Financing activities relate to stock and bond issuance, loan proceeds and liability repayments.

Relevance

Taken together, the components of a properly prepared statement of cash flows show readers how company principals decide where to invest operating cash, how to track strategic investments and when to discontinue commercial involvements. In a sense, a liquidity report illustrates how the business marshals its resources---monetary and non-monetary---to generate revenues, expand market share and stand up to bigger, more cash-rich rivals.