Definition

A statement of cash flow is also called a funds flow statement or cash flow report. Investors sift through this accounting summary to take a peek at how senior management administers corporate cash. Inappropriate cash management is a deal-breaker in modern economies because it casts an unflattering light on top leadership’s operating dexterity. In fact, financial-market participants may rail against a company that doesn’t manage its cash adeptly — by bidding its stock price down. A funds flow statement indicates, in this order, three types of activities: cash flows from operating activities, cash flows from investing activities and cash flows from financing activities.

Investing Activities

To formulate corporate investment strategies, top management often juggles topics ranging from capital spending and real estate acquisition to purchases of equity shares. Cash flows from investing activities show where senior executives’ priorities lie — an important indicator of their strategic vision to steer the firm to economic success. Corporate investments usually draw on long-term asset management, relying on procedures used to purchase real estate, factory plants and production machinery. Other long-term investments include the purchase of financial products, such as stocks or bonds, on securities exchanges (the New York Stock Exchange, for example).

Financing Activities

References

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