MEPX
Chapter 4 of 10All chapters
  1. 1The set of documents
  2. 2The income statement
  3. 3The balance sheet
  4. 4The cash flow statement
  5. 5Ratios
  6. 6The notes
  7. 7Quality of earnings
  8. 8Valuation basics
  9. 9Limits of accounts
  10. 10A reading routine

Chapter 4 of 10

The cash flow statement

The one that resists dressing up.

Three sections

Operating cash shows the business working. Investing shows capital spending and acquisitions. Financing shows borrowing, repayment, dividends and share issues.

  • Free cash flow is operating cash minus capital expenditure.
  • Persistently negative operating cash with rising profit is a serious question.

Reconciling

The statement starts from profit and adjusts for non-cash items and working capital. Reading those adjustments shows exactly why the two numbers differ.