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Making sense of the Cash Flow Statement

A company's cash flow statement reveals whether a company is actually generating cash and what it is doing with it

Making sense of the Cash Flow Statement

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Cash, as they say, is king. It is what keeps a company going. From an investor's point of view, it is the pulse that says much about the health of a company. This is why understanding the cash flow statement is central to learning whether a company is actually generating cash and what it is doing with it.

While companies may manage to show profits and sales on paper, it is the cash flow statement which shows you whether these have really materialized, that is whether the company has realised these sales and profits through cash inflows. It also reveals exactly where money is going from the company. This is why anyone who invests in stocks must know how to read the cash flow statement in addition to the profit and loss statement and the balance sheet.

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