How to Read a Cash Flow Statement

A cash flow statement is a financial document that clarifies the variations in a company's cash balance (referring to cash and cash equivalents found on the balance sheet) over a specified timeframe. Reading a cash flow statement is one of the routine evaluative processes all investors use when considering an investment. Now, you can do it too!

It indicates how effectively a company handles its cash resources, particularly in covering operating costs and meeting debt commitments.

Additionally, the cash flow statement reveals the amount of cash generated by the business that is available to its owners, known as "free cash flow" (FCF). This aspect further underscores the significance of analyzing the cash flow statement to gauge a company's financial performance.

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