How to Read and Interpret a Cash Flow Statement: A Step-by-Step Guide

What is the cash flow statement and why is it important? We walk through a real-life example to explain the cash flow statement and understand how a company generates and uses cash, and for what reasons.
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WHAT IS THE CASH FLOW STATEMENT?
In my experience, the cash flow statement is the least understood financial statement among finance and especially accounting professionals. This is a missed opportunity because the statement of cash flows very elegantly and simply explains to us the sources and uses of cash of any company.
So this video is basically the cash flow statement explained for dummies, with an example.
What does the cash flow statement show? We have the following three main sections which summarize and help us analyze all the main activities of a company:
OPERATING ACTIVITIES
This section tells us how much cash the company generates from its core business. So this is the cash the business makes from selling its products, and covering its immediate and short-term expenses, i.e. the cash flow from selling and delivering the product/service.
INVESTING ACTIVITIES
The investing section tells us about where the company invests its own cash, i.e. what assets/property it bought, if it acquired other businesses, or made any other type of investments.
FINANCING ACTIVITIES
Does the company rely on outside investors to finance itself? The financing activities show our investments in the company -- debt (raised, or paid off), equity raised, or anything else used to finance the company.
Between these three sections, you can understand why is the cash flow statement important. It shows us how our business generates cash, where we invest in it, and who invests in our business.
*BONUS KPI: FREE CASH FLOW
The free cash flow metric, calculated as operating cash flow minus investing cash flow, has become one of the most closely watched cash flow metrics over the last few decades. Why? It gives us the cash available to the owners of the company to do anything they want with - like paying dividends, buying back shares, etc. We break this down key metric in the video!
I hope that you can now feel confident reading and understanding the cash flow statement. If you have questions (I'm sure you do) - please leave comments below and I'll try to help.
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#cashflowstatement #freecashflow

[@SabrinaD76]

This was a huge help. I was struggling with a group project where I was in charge of interpreting the Cash Flow for a company. I was going in circles and you got me back on the right path. Thank You!

[@thisaruwithanapathirana4885]

I've been waiting for this video. Thanks Eric

[@eric_andrews]

Thanks Thisaru, I'm so glad to hear it!! Appreciate you letting me know 🙏

[@saarrun]

Great video, as always!

[@keyspanmusic]

Super helpful vid as always, thanks Eric and please keep these coming!

[@eric_andrews]

My pleasure keyspan! Thanks for checking it out and I'm glad to help....more coming soon!!

[@gregorycohen5221]

Super helpful! Concise yet insightful

[@eric_andrews]

It's my pleasure Greg. Let me know if you want to see anything else!!

[@shahidmehdi5446]

Great work done...

[@duncanmahood2878]

Very intuitive explaination - Thanks Eric!

[@eric_andrews]

Very glad to hear it. Thanks for the comment Duncan 😁

[@francolibero6641]

Thanks , very clear explanations

[@eric_andrews]

Really glad to hear it Franco, I'm glad it was helpful!

[@poodleseigien]

Love your videos! Please keep doing it!

[@eric_andrews]

Thank you! Will do!

[@anchus3286]

This has been extremely useful. Thank you very much!

[@eric_andrews]

You're very welcome!

[@mohamedreda5738]

Thanks a lot, it was a very Helpful Video.

[@eric_andrews]

Hey mohamed! Really glad to hear it!!

[@melissasolomon3499]

E - This was great!! Thank you.

[@eric_andrews]

Thanks Mel I really appreciate it!!

[@pujaagarwal8014]

Simply wow awesome thanks

[@eric_andrews]

Hey Puja - so happy it was helpful. Thanks for the comment and let me know if you'd like to see anything else on the channel!!

[@Wacc1611]

Eric a big hug....🤗

[@eric_andrews]

Thanks for checking out the video and the good vibes Danny 🙏😁

[@_tacotempura]

Hey Eric, could you make a video on forecasting cash flow? Loving your vids!

[@eric_andrews]

Thanks michael! Yes - already have one. Here it is ► Build a 3 Statement Financial Model: kzbin.info/www/bejne/rp27dY2vj56UsM0

[@majdsahmarany3091]

THUMBS UPP!!!

[@arpitjain918]

Great content Eric. If you could create lessons on corporate valuation and equity research it would be extremely helpful.

[@jacobnorman5420]

I second this Eric. How does a professional firm conduct equity research.

[@valentonw772]

Great concise explanations, to the point. I have a question....In the Investing Activities section all acquisitions and investments are treated as paid for in cash as a rule; what happens if that is not the case? i.e. investment/acquisition/disposal on terms or credit. I'm asking from the point of view that ..say in an exam setting it's just presumed that the fixed assets, acquisitions are paid for in cash. Are there likely situations where they aren't paid for in cash?

[@uchechukwualukwe1294]

Non cash items don't enter the cash flow as it does have any impact on either cash coming or going out...

[@mcebisimkhize9483]

Thumbs up

[@avinashchauhan6214]

hi, what is Net Change in Cash

[@eric_andrews]

That would be your net cash flow. That's how much your cash changed on the balance sheet between months (or years). Same number!