Cash Flow Statement (Cash Flow Statement) Example of the company's operating and investing activities

Why Cash Is More Important Than Profit in Company Analysis

Many investors tend to focus solely on profit figures in the income statement, but what truly drives a company’s ability to pay costs, purchase materials, pay salaries, and continue investing is cash flow, not profit figures. The cash flow statement is an essential analytical tool that should not be overlooked because it tells us three important things:

1. Where does the company get its cash from? - Sales, investments, or borrowings
2. Where does the company spend its cash? - Production costs, equipment investments, or debt payments
3. Is there enough cash remaining to continue operations?

The Difference Between the Three Financial Statements

###Balance Sheet( Provides an overview of what the company owns )Assets(, what it owes )Liabilities(, and the owner’s equity at a specific point in time, similar to a snapshot of the company’s financial position.

)Income Statement### Shows the operating results over a period (annually, quarterly, or semi-annually), indicating how much profit or loss the company made. A high profit does not necessarily mean there is ample cash.

(Cash Flow Statement) Reveals the actual inflow and outflow of cash, informing us how much cash the company truly has left to fund its activities.

Together, these three reports form the foundation of ###Fundamental Analysis(, which investors should study to select companies with potential.

The Cash Flow Statement Is Divided Into Three Main Sections

) 1. Operating Cash Flow (Operating Cash Flow) This is the cash generated from the company’s core business—selling products, providing services, licensing—and then paying for costs such as production, wages, taxes, scheduled expenses, and other outlays.

This section is the most critical. If a company’s Operating Cash Flow is positive and consistently increasing, it indicates the company is generating cash steadily from its own operations.

⚠️ Warning: If the cash flow statement shows a large positive cash balance but Operating Cash Flow is negative, it means the cash came from selling assets only once, not from ongoing operations, which is unsustainable.

2. Investing Cash Flow (Investing Cash Flow)

When a company sells old assets ###land, buildings, machinery, or securities(, it receives cash. Conversely, when purchasing new assets to expand the business, cash is paid out.

This section should be interpreted in context:

• Negative Investing Cash Flow = the company is investing in new equipment, which is a good sign for growth.
• Positive Investing Cash Flow = the company is selling assets, but this may be a one-time event rather than a recurring income.

) 3. Financing Cash Flow (Financing Cash Flow) This describes financial activities such as issuing new shares, bonds, or borrowing ###cash inflow(, and repaying loans, buying back shares )cash outflow(.

• Negative Financing Cash Flow = the company is paying off debt or buying back shares, indicating a strong financial position.
• Consistently Positive Financing Cash Flow = the company is borrowing more, which may signal that cash flow from operations is insufficient.

How to Properly Read the Cash Flow Statement

) Step 1: Check Operating Cash Flow If Operating Cash Flow is insufficient or negative, the company has issues with its core business, regardless of how high the ending cash balance is.

( Step 2: Evaluate Investing Cash Flow A growing company needs to invest in equipment and technology, so negative Investing Cash Flow is not necessarily bad, as long as Operating Cash Flow remains positive after investments.

) Step 3: Observe the Pattern of Financing Cash Flow If a company consistently has negative Financing Cash Flow ###paying off debt, buying back shares###, it indicates a company with surplus cash and good financial health.

Real Example: Microsoft from 2020 to 2023

Microsoft provides a good example of a company with sustainable cash flow:

• Operating Cash Flow has steadily increased from $60 billion ###2020( to $87 billion )2023(, mostly from actual operations.
• Investing Cash Flow is negative around $20-25 billion annually, showing ongoing investments in technology and new equipment.
• Financing Cash Flow is negative about $40-50 billion annually, mainly due to share buybacks )Share Buyback(, reflecting confidence in financial health.

After subtracting investments from Operating Cash Flow, Microsoft still has Free Cash Flow )Free Cash Flow( of approximately $50-60 billion per year, demonstrating the company’s real strength.

Summary

The cash flow statement is not complicated or scary—just remember these three key points:

1. Check if cash comes from operations — if negative, the company has problems.
2. See how much the company invests — continuous investing is a good sign.
3. Monitor debt management — healthy companies should pay down debt and buy back shares.

Once you understand the cash flow statement, you will see what many investors overlook: the company’s real cash, not just profit figures that can be manipulated. This information will help you identify truly promising companies for long-term investment.