Cash flow statement is one of the financial statements of the company it shows the number of cash equivalents and cash that enter and leave the company; cash flow statement measures the company health by measuring how well it’s generating cash to pay the company’s debt, obligation and to fund the company operation expenses, companies also use cash flow statements to foresee the future cash flow which helps with budgeting. Cash flow statement composed from 4 main cash components, cash from financing, investing, operating and disclosure of noncash activities, cash flow statement does not include future incoming or outgoing cash including sales that made on credit. Operating activates: it includes all the cash from the business activates meaning all the cash generated from the business services and products, which will include: 1- Payment interest 2- All cash generated from sales of goods and services 3- Wages and salary of employees 4- Rent 5- Income tax payments 6- Payments to suppliers for their goods and services that were used in the production Investing activities: include all sources and uses of cash form the company’s investments like the sale of assets, loans received from customers or made to vendors Financing activities: it includes all cash associated with borrowing and repaying loans to banks There are two methods for calculating cash flow direct and indirect method: Direct method: under this method, the income statement is restructured on cash bases from top to bottom it adds up all types of receipts and cash payments like cash paid out in salaries and cash paid to suppliers.
Indirect method: it’s calculated by taking the net income off the company’s income statement, It adjusts the net income to net cash provided by operating activates
