The Cash Flow Statement will indicate which cash outflows and inflows were made during the period and the result of that flow. The information contained in the cash flow statement, when used in conjunction with the information contained in the other financial statements, may assist users in assessing the entity’s ability to generate positive net cash flows from its activities, in order to meet its obligations as well as paying dividends to its shareholders.

Reflects cash transactions from operating activities, investment activities and financing activities, as well as the presentation of a reconciliation of results and a net cash flow generated by operating activities, in order to provide information on the net effects of operating transactions and other events that affect the result.


Companies accumulate and spend money in different ways, so cash flow is divided into three sections:

  • Cash flows from operations;
  • Financing cash flows;
  • Cash flows from investments.

Basically, the sections on operations and financing demonstrate how the company raises money, while the investment section demonstrates how it consumes money.


This section examines the large amount of money the company spends on capital expenditures, such as purchasing new equipment or any other asset it needs to maintain the business. This also includes controlling other companies and financial investments, such as money market funds.


This section describes the cash flows associated with financing activities. The origins of cash inflows and outflows are the sale of shares , debentures and payment of bank loans.

Thus, paying off a bank loan appears as an outflow of cash flow, as well as the payment of dividends and share repurchases.


This section shows money from the sale of goods and services less the money needed to produce and sell them. Investors tend to prefer companies that produce a positive net cash flow from operating activities

High-growth companies, such as technology companies, tend to have negative cash flow from operations in their early years. At the same time, changes in operating cash flow typically provide a preview of changes in future net revenue. It is usually a good sign when the flow increases, but beware of an increasing gap between reported net profits and cash flow from operating activities. If the net profit is much higher than the cash flow, the company may be increasing or decreasing its reserve of earnings or costs. The flow of Operational Activities can be better understood when organized into two subgroups, the cash generation of the business and the need for working capital.

The cash flow of the business originates from the result projected by the company (Income Statement for the Year (DRE) Budgeted). It should be noted that the profit or loss for the year, in most cases, is not equivalent to cash generation. This occurs due to the existence of accounts that change the result, but that do not have an effect on the entry or exit of cash (some examples are depreciation and equity in the income statement). For this reason, for the purpose of calculating cash generation, the effect of non-cash accounts should be excluded from the profit or loss budgeted in the Income Statement. In order not to compromise the company’s financial health over time, it is important that the company seeks to maintain this subgroup with positive value. The second subgroup is the working capital requirement, which can be determined by the variation in the current assets and liabilities accounts, with the exception of available and loans. know about What Huge Risks Are Big Banks Hiding?

In general, these variations can be understood through the following concepts:


  • The increase in their balances decreases the company’s cash.
  • The decrease in their balances increases the company’s cash.


  • The increase in their balances raises the company’s cash. 
  • The decrease in their balances reduces the company’s cash.

This set of movements shows the projection of cash needs, which can be both positive and negative, regardless of the budgeted result.


Many analysts and investors prefer to look primarily at a company’s cash flow statements, as the amounts contained therein eliminate many accounting effects while providing a much more realistic picture of a company’s financial situation. For example, accounting for a large sale can provide a huge boost to a company’s revenue, but if that sale is not made in cash, that money may not actually go into the company’s cash if it has difficulty collecting that debt. . Thus, the receipt of the company will only be effective when we see the amount due in the cash flow presented by the company. It is for this reason that many companies can apparently be quite profitable and suddenly break down because they are unable to manage finance receivables well. It is important to note that the study of the results on the accrual basis and the balance sheet are also necessary for the investor to draw better conclusions about the economic and financial health of a company. In addition, drawing a comparison between EBITDA and cash flow from operating activities can also be a good indicator that shows the degree of a company’s default in the management of its receivables.


So, the cash flow statement is fundamental for the analysis of the company’s financial health, because it demonstrates exactly the money that the company actually has in cash. It demonstrates the company’s ability to pay for its operations and to grow in the future.

In fact, one of the most important characteristics you should look for when investing is the company’s ability to produce a financial return, because just because a company makes a profit on the DFC or DRE does not mean that there will be no problems caused by cash flow later on. insufficient.

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