What types of activities are shown on a cash flow statement?

The cash flow statement categorizes a company's cash inflows and outflows into three main types of activities, each providing insights into different aspects of the company's financial operations. These three types of activities are:

1. Operating Activities:

   • Operating activities represent the cash flows generated or used by a company's core business operations. These activities are directly related to the company's primary revenue-generating activities, such as selling products or providing services. Key components of operating activities include:
     • Cash received from customers for the sale of goods or services.
     • Cash payments to suppliers and vendors for inventory and operating expenses.
     • Cash payments to employees for salaries and benefits.
     • Cash payments for taxes, both income taxes and other taxes like sales taxes.
     • Interest received on loans or investments, if such interest is considered part of the company's core operations.

   The net cash flow from operating activities provides valuable insights into a company's ability to generate cash from its day-to-day business operations. A positive cash flow from operating activities indicates that the company is generating more cash than it is spending on its core operations.

2. Investing Activities:

   • Investing activities on the cash flow statement reflect cash flows related to the acquisition and disposal of long-term assets and investments. These activities are typically not part of a company's day-to-day operations but are essential for its growth and capital allocation. Key components of investing activities include:
     • Cash payments for the purchase of property, plant, and equipment (capital expenditures).
     • Cash received from the sale of property, plant, and equipment.
     • Cash payments for investments in other companies, including acquisitions.
     • Cash received from the sale of investments in other companies.
     • Loans made to other entities (if not considered part of the company's core operations).
     • Cash received from the repayment of loans made to other entities (if not considered part of the core operations).

   Investing activities help stakeholders understand how a company is investing in its future growth and managing its capital assets.

3. Financing Activities:

   • Financing activities on the cash flow statement encompass cash flows related to the company's capital structure, debt, equity, and dividends. These activities represent how the company raises capital and manages its financing obligations. Key components of financing activities include:
     • Cash received from the issuance of debt, such as bonds or loans.
     • Cash received from the issuance of equity, including common stock.
     • Cash payments for the repurchase of the company's own stock (stock buybacks).
     • Cash payments for the payment of dividends to shareholders.
     • Cash payments for the repayment of debt, including interest payments.

   Financing activities reveal how a company is financing its operations and returning capital to shareholders.

Additionally, the cash flow statement includes a reconciliation section that summarizes the net change in cash and cash equivalents during the reporting period. This section reconciles the cash balance at the beginning of the period with the cash balance at the end of the period, providing a comprehensive view of the company's cash flow dynamics.

By categorizing cash flows into operating, investing, and financing activities, the cash flow statement helps stakeholders understand where a company's cash comes from, how it is used, and how it manages its financial resources.