Statements
of Cash Flow are required financial documents
for publicly traded firms. The Statement of Cash
Flow is used to identify the sources and uses
of funds that flowed through the firm. This statement
should not be confused with a cash flow schedule
that is used as a forward planning tool. The Statement
of Cash Flows measures what did happen
over a period of time; usually the past calendar
or fiscal year. The cash flow schedule is used
to project future cash needs and may be as short
as projections month by month for the next year
or planning period.
There
are three main areas through which cash originates
or is spent.
Cash
flow from operations: This area of the
financial document reveals the affect general
business operations play in the growth or reduction
in total cash flow. This is the cash flow based
solely on the producing and selling of products
and services. It does not include and money spent
or received from the purchase or sale of any long
lived asset. This measures Operations Manager's
effectiveness to produce free cash flow.
Cash
flow from investment activities: In
this area the management team is evaluating how
well they did in creating free cash flow from
the sale and purchase of assets. This
measures the Finance Manager's effectiveness to
produce free cash flow.
Cash
flow from financing activities: Here
the firm is measuring the impact of expanding
or retiring debt, or the effects of buying or
selling more of the firm's stock of any type.
After
each area is evaluated all three are consolidated
into one statement called the Statement of Cash
Flows.
