The cash flow statement shows how cash moves in and out of a company over a certain period of time 💧

Cash flow statements help you understand exactly what a company is making money from, and what it is spending it on, in order to visualize what happens to a company’s cash.

Just like income statements and balance sheets, it has 3 components: operating cash flows, investing cash flows and financing cash flows

1️⃣ Operating Cash Flow is the net amount of cash earned from normal business operations – for example, Nike selling shoes 🏃

2️⃣ Financing Cash Flow = net amount of cash spent on, or earned from, loans and equity.

When companies pay off the interest on their loans, issue stock awards to their employees or pay dividends to shareholders like you, they need to spend cash 💰

3️⃣ Investing Cash Flow = net amount of cash spent on, or earned from, investments, like buying new equipment or buying other companies. 🏭

Just like how you invest money into stocks, companies use their money to invest in, or buy, other companies in the hope that by spending money now, they’ll make more in the future.

So what can you take away from a Cash Flow statement?

One tip is to look for positive operating cash flow; it means the company is making money from its main business. 👍

Many companies may have negative investing cash flows.

That's fine, but you'll need to evaluate whether they’re making smart investments or not!