A business can be profitable on paper yet run out of cash. The cash flow statement tracks actual cash moving in and out, revealing the true liquidity position.
This guide explains the three sections of a cash flow statement and why cash differs from profit.
What is the cash flow statement?
The cash flow statement is split into cash from operating activities (core business), investing activities (buying/selling assets) and financing activities (loans, equity, dividends).
It reconciles opening and closing cash, showing exactly where cash came from and went.
Three sections
| Section | Covers |
|---|---|
| Operating | Cash from day-to-day business |
| Investing | Buying/selling assets and investments |
| Financing | Loans, equity raised, dividends paid |
Frequently asked questions
Why is cash flow different from profit?
Profit includes non-cash items (like depreciation) and accrual entries; cash flow tracks only actual cash movements.
Which cash flow section matters most?
Operating cash flow — sustainable businesses generate positive cash from their core operations.