Cash Flow Statement Part 1

The financial statement that is used to show the sources and uses of a company's funds is called a Cash Flow Statement. The analyst uses the Cash Flow Statement to examine the flow of funds into a company and the use of those funds.

The company's Balance Sheet for the past two years  and the Income Statement provide the information for the Cash Flow Statement as follow, 

Cash Flow Statement is grouped into two main sections:
· Funds generated and used by operating activities
· Funds generated by financing activities

Operating Activities

Sources.

1. An increase in a liability or equity account is a source of cash.
For example, an increase in ACCOUNTS PAYABLE

2. A decrease in an asset account is a source of cash.For example, the increase in the INVENTORY account indicates that  Company increased its investment in inventories.

There are two accounts in the Income Statement that represent sources of cash. The first, NET INCOME BEFORE PREFERRED DIVIDEND and DEPRECIATION.

Uses

 1. A decrease in a liability or equity account is a use of funds.
Paying off a loan is one example. in ACCOUNTS PAYABLE (from $46.627 million in 2013 to $39.639 million in 2014) indicates that in 2014. This means that Company paid off $6.988 million of short-term liabilities.

2. An increase in an asset account is a use of cash.
The increase indicates that funds were used to purchase additional assets.

Financing Activities

Financing activities are related to the buying and selling of capital.  Remember, a company has two alternatives for raising capital: debt and equity. This section of the Cash Flow Statement is a summary of the equity raised and the debt borrowed and paid off. Usually, only the net changes of each account are listed.

Financing activities are related to the buying and selling of capital. Remember, a company has two alternatives for raising capital: debt and equity. This section of the Cash Flow Statement is a summary of the equity raised and the debt borrowed and paid off. Usually, only the net changes of each account are listed.