Plain definition
A statement of cash flows explains the change in cash and cash equivalents during a period by classifying cash movements as operating, investing, or financing activities. It answers where cash came from and where it went, complementing profit and the balance sheet. A movement can be economically important without appearing as current operating cash: buying equipment is investing cash, and borrowing is financing cash.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A company begins June with cash. Operations generate , it buys equipment for , and owners contribute . Closing cash is : 100,000 + 40,000 − 90,000 + 70,000. The month ends with more cash, but management can see that the increase came from owner funding, while investment absorbed more than operating cash generated.
| Opening cash | |
|---|---|
| Operating cash flow | |
| Equipment purchase | |
| Owner contribution | |
| Closing cash |
The figures are hypothetical. Classification follows the applicable framework and facts; a positive closing balance does not by itself prove sustainable operations.
Why it matters
Cash-flow information prevents management from confusing profit with liquidity or funding with sales performance. It shows whether operations are producing cash, whether growth requires investment, and whether financing is covering a recurring cash gap.
Practical consequence
Reconcile opening and closing cash to bank and ledger balances. Review operating cash alongside working-capital changes, investing cash alongside approved capital plans, and financing cash alongside repayment dates and covenants. Investigate large movements by counterparty and purpose; do not improve the story by moving a cash flow between categories without policy support.