Chapter 6

Reporting Cash Flows and Changes in Stockholders’ Equity

In This Chapter

arrow Presenting the statement of cash flows in two flavors

arrow Earning profit versus generating cash flow from profit

arrow Reading lines and between the lines in the statement of cash flows

arrow Offering advice and observations on cash flow

arrow Summarizing changes in stockholders’ equity in a statement

This chapter explains the third primary financial statement reported by businesses — the statement of cash flows. (The other two are the income statement and the balance sheet, which I explain in Chapters 4 and 5.) This financial statement explains why cash flow from profit differs from bottom-line profit, and summarizes the investing and financing activities of the business during the period.

It may appear that this is an odd mix to put into one financial statement, but it actually makes sense. Earning profit (net income) generates net cash inflow (at least it should). Making profit is a primary source of cash to a business. ...

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