where 
understanding cash flowcash flow refers to the money that goes in and out of a business businesses take in money from sales as revenues inflow and spend money on expenses outflow they may also receive income from interest investments royalties and licensing agreements and sell products on credit assessing cash flows is essential for evaluating a company s liquidity flexibility and overall financial performance positive cash flow indicates that a company s liquid assets are increasing enabling it to cover obligations reinvest in its business return money to shareholders pay expenses and provide a buffer against future financial challenges companies with strong financial flexibility fare better especially when the economy experiences a downturn by avoiding the costs of financial distress cash flows are analyzed using the cash flow statement which is a standard financial statement that reports a company s cash source and use over a specified period corporate management analysts and investors use this statement to determine how well a company earns to pay its debts and manage its operating expenses the cash flow statement is an important financial statement issued by a company along with the balance sheet and income statement 1cash flow statementthe cash flow statement acts as a corporate checkbook to reconcile a company s balance sheet and income statement 1 the cash flow statement includes the bottom line recorded as the net increase decrease in cash and cash equivalents cce the bottom line reports the overall change in the company s cash and its equivalents over the last period the difference between the current cce and that of the previous year or the previous quarter should have the same number as the number at the bottom of the statement of cash flows 1types of cash flowcash flow from operations cfo describes money flows involved directly with the production and sale of goods from ordinary operations also known as operating cash flow cfo indicates whether or not a company has enough funds coming in to pay its bills or operating expenses operating cash flow is calculated by taking cash received from sales and subtracting operating expenses that were paid in cash for the period operating cash flow is recorded on a company s cash flow statement indicates whether a company can generate enough cash flow to maintain and expand operations and shows when a company may need external financing for capital expansion 2cash flow from investing cfi or investing cash flow reports how much cash has been generated or spent from various investment related activities in a specific period investing activities include purchases of speculative assets investments in securities or sales of securities or assets negative cash flow from investing activities might be due to significant amounts of cash being invested in the company such as research and development r d and is not always a warning sign 1cash flows from financing cff shows the net flows of cash used to fund the company and its capital cfi is also commonly referred to as financing cash flow financing activities include transactions involving issuing debt equity and paying dividends cash flow from financing activities provides investors insight into a company s financial strength and how well its capital structure is managed 1