Reading a cash flow statement

The cash flow statement records the actual cash that moved during the period, sorted into three sections: operating activities, investing activities, and financing activities. Together they reconcile the beginning cash balance to the ending cash balance on the balance sheet.

It exists because net income on the income statement is an accrual figure that can differ sharply from cash. The cash-flow-vs-earnings guide covers that gap in detail.

Operating cash flow (OCF) is the cash generated by the core business. It starts from net income and adds back non-cash charges such as depreciation and amortization, then adjusts for changes in working capital (covered in the working-capital guide).

Because it strips out non-cash accounting effects, operating cash flow is often read as a cleaner measure of how much cash the business actually produces from operations.

Capital expenditure (capex) is cash spent on long-lived assets like property and equipment, reported in the investing section. The headline derived figure is: free cash flow = operating cash flow − capex.

Free cash flow is the cash left after maintaining and growing the asset base — the cash available to pay down debt, pay dividends, or buy back shares. The free-cash-flow guide goes deeper on how it is used and its limits.

The financing section shows cash raised from or returned to investors and lenders: issuing or repaying debt, issuing stock, paying dividends, and repurchasing shares. Dividends and buybacks are forms of return of capital to shareholders.

The dividends-and-buybacks guide explains how these flows are read together, and the book-value guide covers how buybacks interact with equity and share count.

A company can report positive net income while burning cash, or report a loss while generating cash, because accrual accounting recognizes revenue and expenses when earned or incurred rather than when cash changes hands.

Reading the cash flow statement next to the income statement is how that difference becomes visible. The how-the-three-statements-connect guide shows the precise links: net income tops the cash flow statement, and depreciation bridges the income statement and cash flow.