The cash flow statement is a statement reflecting information about cash inflows and outflows of a public company. Cash refers not only to the company's cash in the treasury department's safe, but also includes bank deposits, short-term investments in securities, and other monetary funds. The cash flow statement can tell us the cash income and expenditure activities arising from the company's business activities, investment activities and financing activities, as well as the net increase in cash flow. It helps us to analyze the company's liquidity and payment ability and thus grasp the company's ability to survive, develop and adapt to market changes.
The cash flows of listed companies can be divided into the following five categories.
To reflect the cash inflows, outflows and net flows caused by the company's normal operations, such as increased cash inflows from sales of goods and export tax rebates, increased cash outflows from the purchase of raw materials, payment of taxes and salaries of personnel and so on.
To reflect the cash receipts and payments and the results of the company's activities in acquiring and disposing of securities, fixed assets and intangible assets, such as cash receipts from the sale of plants and cash outflows from foreign investments such as the purchase of stocks and bonds.
To reflect the cash receipts and payments activities and their results caused by the company in the process of raising funds, such as absorbing capital, distributing dividends, issuing bonds, obtaining loans, repaying loans and so on.
Cash flows that are not attributable to normal economic activities, such as accepting donations or donating to others, fines cash receipts, disbursements and so on.
This is a type of information that is very important to shareholders. Although these activities do not cause cash receipts and payments in the current period, they can have very significant impact on future cash flows. Such activities are mainly reflected in the Supplementary Information column, such as repayment of debt with foreign investments, foreign investments in fixed assets, etc.
The cash flow statement is analysed in three main ways.
If the net cash flow increased during the period indicating that the company's short-term solvency increased, the financial situation has been improved. On the contrary case, it indicates that the company's financial situation is more difficult. Of course, it is not a net cash flow the greater the better: if the company's net cash flow is too large, it indicates that the company has not been able to effectively use this part of the funds---a waste of resources.
Operating activities is the company's primary business. This activity provides cash flow to be used for investment and regeneration of new cashflow. The more cash flow generated from the primary business,the stronger the stability of the company's development. The company's investment activity is to find investment places for idle funds. The fund raising activity is to raise funds for operating activities. And the cash flow that occurs from both of these activities is ancillary and serves the primary business. If this kind of the cash flow is too large, it indicates the lack of financial stability of the company.
Shareholders must pay attention to whether the analysis is for internal or external investment when analyzing investment activities. The increase of internal investment cash outflows means the increase of fixed assets and intangible assets, indicating that the company is growing and expanding. If the cash inflow of internal investment increased significantly, it means that the company's primary business activities are not able to fully absorb the existing funds and the efficiency of capital utilization to be improved. The increased external investment cash inflows means that the company's existing funds is unable to meet operational needs since funds are brought in from outside. If cash outflows from foreign investments increase significantly, it indicates that the company is generating profits from non-primary business activities.