Cash Flow Statement: The Basics, the Format, and a Worked Example

Before we discuss the components of a cash flow statement, let’s answer an important question: what is a cash flow statement?

A cash flow statement is a financial statement that summarizes your business’s cash inflows and outflows. The data it contains gives you a clear picture of how well your company is managing its cash position.

It lets you know:

• Whether you have enough cash to cover operating expenses
• Where your money is being spent
• Where your cash is coming from

A cash flow statement is one of the three primary financial statements, with the other two being the income statement and balance sheet. It’s often used by lenders and investors to determine whether a company is financially sound.

A statement of cash flows has three main components: Cash from Operating Activities, Cash from Investing Activities and Cash from Financing Activities. To better understand these components, you can review the different types of cash flow.

Each of these components provides detailed information about where your cash is coming from and going to.

Cash From Operating Activities

The first section on a business cash flow statement is “cash from operating activities,” or CFO. The CFO section outlines the money generated from regular business activities, such as the sale of goods or the delivery of services.

Cash from operating activities does not include:

• Investment revenue and expense
• Long-term capital expenditures

It focuses only on the core business and provides insight into your operations' financial success.

CFO can include:

• Income tax payments
• Receipts from sales of goods and services
• Salary and wage payments
• Rent and utility payments

Cash From Investing Activities

Cash from investing activities, or CFI, is also included in a cash flows statement. It outlines how much money has been generated from or spent on investing activities, such as:

• The sale of assets or securities
• The purchase of a physical asset
• An investment in securities

Investing activities play an important role in growth and capital, so lenders may look at this section with greater scrutiny.

Cash From Financing Activities

Cash from financing activities, or CFF, outlines the cash used to fund the company. Financing-related activities can include loans, dividends and equity.

Changes in CFF are considered cash-in whenever capital is raised and cash-out whenever dividends are paid.

It’s important to note that while interest is considered a cash-out expense, it is not reported as a financing-related activity. Instead, it is reported as an operating activity.

CFF provides insight into how a company raises the cash it needs to grow or maintain its operations.

Illustrative example: a small services company, Q1.

Maple Design Co. Statement of Cash Flows, Jan 1 to Mar 31

How to read it: the company earned $42,000 on paper but only generated $40,500 of operating cash (customers paying slowly cost it $9,000 of timing). After equipment, loan payments, and a draw, cash grew $9,500. Profit and cash agree in direction here, but they often don't, and that divergence is the whole reason this statement exists.

Always the same skeleton: Opening Balance ➔ Operating ➔ Investing ➔ Financing ➔ Net Change ➔ Closing Balance.

• List inflows positive and outflows in parentheses, and subtotal each section.
• Monthly or quarterly is the practical cadence for a small business.

Direct vs. Indirect Method: A Quick Example

The example above uses the indirect method (start from net income, adjust for non-cash items and working-capital changes), which is what most software and accountants produce.

The direct method lists actual receipts and payments (illustrative: cash collected from customers $96,000, cash paid to suppliers $31,000).

Same closing number, different path. See our indirect method guide for the full reconciliation.

A cash flow statement looks backward: it shows the cash that already moved. To see the next quarter before it arrives, pair it with a cash flow forecast.