Cash Flow Statement
Definition
The cash flow statement reconciles net income to the actual change in cash over a period, split into three sections: cash flow from operations (CFO), investing (CFI), and financing (CFF). Under the indirect method (the standard in practice), CFO starts with net income, adds back non-cash charges like D&A and stock-based compensation, and adjusts for changes in working capital.
Investing activities include capital expenditures, acquisitions, and purchases/sales of investments. Financing activities include debt issuance and repayment, equity issuance, share buybacks, and dividends.
The sum of the three sections equals the net change in cash, which links to the cash balance on the balance sheet. Because it strips out accrual timing, it is the statement analysts trust most for assessing cash generation.
Why interviewers ask
Interviewers ask "if you could only have one statement to judge a company's health, which would you pick?" — the expected answer is the cash flow statement (or, for a full picture over time, statements from multiple periods), because cash is hardest to manipulate. Traps include mixing up the sign convention on working capital changes (an increase in receivables is a use of cash) and misclassifying items between sections.
Related terms
Interviews don't test definitions — they test recall under pressure.
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