Analyzing the Statement of Cash Flows | Financial Statement Analysis

The statement of cash flows is an incredibly useful resource for understanding a company's business operations. This is because the statement of cash flows tells you why a company's cash balance changed from one period to the next. What were the company's sources and uses of cash?
Understanding cash flow is critical because no company can survive without cash. If a company runs out of cash, it cannot continue operations (it won't be able to pay its employees, pay its utility bill, etc.).
The statement of cash flows organizes cash flows by 3 categories:
(1) operating cash flows
(2) investing cash flows
(3) financing cash flows
A company's operating cash flow is its most important indicator of financial health. Operating cash flow is essentially cash-basis net income; while accrual-basis net income (from the income statement) includes credit sales and non-cash expenses like depreciation, operating cash flow does not include these items.
Investing cash flows include cash flows from the acquisition (or disposition) of fixed assets and/or investments.
Financing cash flows include cash flows from transactions with owners (paying dividends, issuing stock, repurchasing stock) and creditors (borrowing money, repaying debt).
The statement of cash flows can be used to predict future cash flows, which can be used to value the firm, assess the company's ability to make capital investments, etc.
You should also dig deeper and assess how sustainable the cash flows are. For example, a company that just barely achieved positive operating cash flow simply by delaying payment of its vendors might not be expected to generate the same operating cash flow next period, since you can only delay payment of vendors for so long before they demand to be paid.
The statement of cash flows can also be used to determine where a company is in its life cycle. A mature firm, for example, would have positive operating cash flow and most likely negative investing cash flow (since it's investing money to grow the business and keep it competitive). A startup would most likely have negative operating cash flow (since it isn't making money yet), negative investing cash flow (since it's investing to grow the business), and positive financing cash flow (it needs to raise money from borrowing or issuing stock since it can't generate positive cash flow from its main business yet).
Companies can also manipulate cash flow, by structuring transactions or altering their accounting methods to shift cash inflows to the operating section and shift cash outflows to the financing or investing section. I'll discuss how to detect cash flow manipulation in a future video.
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[@itsladyasmr]

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[@katyf9396]

Thank you for putting this video together. I find the format helpful in understanding the material

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Very well explained and easy to understand. Thank you!

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Very nice video

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[@JackieChan-00]

Where can I find part 2? I’d like to learn more about analysis… by the way I owe my degree to you, sir.