Reporting Cash Flows and Changes in Stockholders’ Equity
In This Chapter
Presenting the statement of cash flows in two flavors
Earning profit versus generating cash flow from profit
Reading lines and between the lines in the statement of cash flows
Offering advice and observations on cash flow
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. ...