Understanding the Cash Flow Statement
Originally Published: May 2010
As the name implies, the Cash Flow Statement provides information about an organization’s cash inflows and outflows over a specified time period. Simply put, it reveals how a company spends its money (cash outflows) and where that money comes from (cash inflows).
The Cash Flow Statement is the best resource for testing a company’s liquidity because it shows changes over time, rather than absolute dollar amounts at a specific point in time. It's also useful in determining the short-term viability of a company.
It's important to note that the Cash Flow Statement reflects a firm’s liquidity. It does not show profitability – the Income Statement does that.