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Where did the money go? 1st look at cash flow!

Investor homework piles up facts and profits

We track the comings and going of cash to understand the pulse of corporate finances.

Here’s looking at you – CASH!

This post continues the White Top View Series, Basic Numbers. Today in Part 4 we discuss cash flow.

Links to all parts of the White Top View Series, Basic Numbers are at the end of this post.

The cash flow statement gives us vital information. It tracks the cash received as well as the cash consumed or spent by the company. Knowing the comings and going of cash helps investors better understand the pulse of corporate finances.

Cash Flow – where did it all go!

Cash flow or “sources and uses of funds” or some variation of that name gets applied to the report that tells us the source or where the cash came from and where it gets used. Like the income statement it covers the term of the reporting period up to the date of the report. Typically that is for a quarter (3 months), year to date or in the case of the annual report, 12 months. This is in contrast to the balance sheet which always reports the numbers as of that one date.

Companies need cash to pay the bills just like we do. The cash flow report is very useful because cash flow makes the world and our company go around. It is like the corporate or business blood flow needed to keep the business heart beating.

We want to see that the company generates cash. This report uses and sorts both balance sheet and income statement information. The cash flow report tells us if we have an increase or decrease in cash during the reporting period. The business activities that affect cash flow and the amounts of cash, divide into three groups which help us understand the business picture.

Cash Flow Activity

  1. operations

  2. investing

  3. financing

This report lists these three groups of business activity beginning with operations. That tells us if business operations produced or used cash.

Next investing activity tells us if management invested cash or took cash out of the business.

Finally financing sources, equity or loans get reported. The company can increase or decrease financing by accepting or re-paying cash from investors or from borrowers. Then we see how and where management invested cash in the business and what financing activity was undertaken during the reporting period.

We can see if operations consume or produce cash. We also see if investing meets the operating needs and the source or disposition of any cash.

Three key financial reports

The balance sheet, income statement and cash flow statements form a powerful information team. And like any other team they have to be used together to get the best reporting result. Having a basic understanding of those reports gives you a way to look at and understand the financial matters of a company.

Financial notes are rich sources of valuable information

Notes attached to the financial statements are a very rich source of information, clarification and explanation. Also the management discussion and analysis reports many details about the business and current period. When looking to invest these are very valuable parts of the quarterly and annual reports are well worth your attention.

Management discussion and analysis is more than spin

The Management discussion and analysis is a vital source of information about a company. This report is management’s discussion of the numbers contained in the financial statements. Read it. Do keep in mind, this is your management reporting to you. Of course it is their point of view. But this management information is much more than spin.

The discussion and analysis reports are full of information and insight. Understanding that information is a very helpful aid to understanding the company.

Make use of all parts together to gather excellent and useful information to use when making investment decisions.

This completes the White Top View Series, Basic Numbers as an introductory overview to understanding financial statements.

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These discussions and information intend to help you better understand markets and investing. I am not a financial or investment advisor; opinions are for informational and educational purposes only and are not intended as investment advice. For syndication of the site or blog, please contact

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Links to the White Top View Series, Basic Numbers

Part 1: Show me the numbers! Financial statement basics

Part 2: Look the balance sheet numbers balance!

Part 3: Getting to the bottom line on financial statements

Part 4: Where did the money go? 1st look at cash flow

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