--- title: Making Sense of Your Statement of Cash Flows description: Machen McChesney provides business owners with valuable insight into a company's financial health by reviewing the statement of cash flow. image: https://info.machen.cpa/hubfs/Cash%20Flow-1270680715-2-1.jpeg --- [Family of Services](http://machenmcchesney.com/about-us/family-of-companies/)  |  [CPA & Business Advisory](http://machenmcchesney.com)  |  [Payroll, HR & Benefits](http://focuspaysolutions.com/)  |  [Wealth Management](http://machenmcchesney.com/services/financial-planning-and-wealth-mangement-services/) Auburn-Opelika (334) 887-7022 | Montgomery (334) 244-8900 [![mm-re-cobrand-fd-blues](https://info.machen.cpa/hs-fs/hubfs/mm-re-cobrand-fd-blues.png?width=279&height=100&name=mm-re-cobrand-fd-blues.png)](http://machenmcchesney.com) Search this site on Google Search Google Search this site on Google Search Google - [Client Portal](https://machenmcchesney.sharefile.com/Authentication/Login) - [1040 Electronic Organizer](https://www.my1040data.com/account/login/HT7902990) - 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It’s arguably the most misunderstood and underappreciated part of a company’s annual report. After all, a business that reports positive net income on its income statements sometimes doesn’t have enough cash in the bank to pay its bills. Reviewing the statement of cash flows can provide significant insight into a company’s financial health and long-term viability. Under Generally Accepted Accounting Principles (GAAP), the statement of cash flows is typically organized into three sections: **1. Cash flows from operations.** This section focuses on cash flows from selling products and services. It customarily starts with accrual-basis net income. Then it’s adjusted for items related to normal business operations, such as: - Gains or losses on asset sales, - Depreciation and amortization, - Income taxes, and - Net changes in working capital accounts (such as accounts receivable, inventory, prepaid assets, accrued expenses, and payables). The end result is cash-basis net income. Companies that report several successive years of negative operating cash flows may be better off closing than continuing to incur losses. **2. Cash flows from investing activities.** If a company buys or sells property, equipment, or marketable securities, the transaction generally shows up here. This section reveals whether a company is reinvesting in its future operations — or divesting assets for emergency funds. **3. Cash flows from financing activities.** This section shows cash flows from raising, borrowing, and repaying capital. It highlights the company’s ability to obtain cash from lenders and investors, including: - New loan proceeds, - Principal repayments, - Dividends paid, - Issuances of securities or bonds, and - Additional capital contributions by owners. Capital leases and noncash transactions are reported in a *separate* schedule at the bottom of the statement of cash flows or in a narrative footnote disclosure. For example, if a borrower purchases equipment directly using loan proceeds, the transaction would typically appear at the *bottom* of the statement rather than as a cash outflow from investing activities and an inflow from financing activities. In addition, U.S. companies that enter into foreign currency transactions customarily report the effect of exchange rate changes as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents. **For more information** The statement of cash flows provides valuable insight about your company’s financial health. But it may not always be clear how to classify transactions. 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