Clarification on cash flow statement



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Sir, What is a cash flow statement and how it correlates with balance sheet and income statement ? What is the need of a cash flow statement when there is a balance sheet which shows the financial status of the company and income statement which shows the profitability of the company ?

1 Answer(s)


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Good question. In fact the Cash Flow Statement is the most important statement in a company - especially as the company matures.

The Income Statement shows the operations of the company - how much revenue it is making, what are its expenses and profits.

The Balance Sheet shows how much cash is left in the bank, how much is borrowed, how much shares etc.

Now if you want to know how the cash is being spent, what cash is inflow (not all revenue is in cash), what cash is outflow (not all expense is in cash), then the cash flow statement is critical.