Financial Statements - Statement of Cash Flows and Pro Forma Statements

C. Statement of Cash Flows
The statement of cash flows is a third key financial statement issued by public companies. It shows all cash inflows and cash outflows that a company experiences during a given accounting period.

The cash inflows include cash from ongoing operations and external investment sources. The cash outflows include cash paid for business expenses along with investment activities.

The cash flow statement is broken down into three sections: cash flows from operating activities, cash flows from investing activities and cash flows from financing activities.

Because public companies use the accrual method of accounting, the income statement may not accurately reflect a company's cash position. The accrual method of accounting requires companies to record revenue when earned, not when cash is paid for a product or service. That means a company could be increasing earnings, while at the same time its cash balance is declining. (For more, see What is a Cash Flow Statement?)

D. Pro Forma Statements
Pro forma statements contain figures illustrating "what if" scenarios to highlight current or projected figures. They are used to reflect a proposed merger or acquisition or emphasize certain figures when a company issues an earnings announcement to the public.

Pro forma statements may not comply with generally accepted accounting principles (GAAP) and should be analyzed with caution by investors. (For more, see Understanding Pro Forma Earnings.)

Cash Flow Management


Related Articles
  1. Markets

    Fundamental Analysis: The Cash Flow Statement

    By Ben McClureThe cash flow statement shows how much cash comes in and goes out of the company over the quarter or the year. At first glance, that sounds a lot like the income statement in that ...
  2. Professionals

    Cash Flow

    Learn all about the cash flow statement.
  3. Fundamental Analysis

    Cash Flow From Operating Activities

    Cash flow from operating activities is a section of the Statement of Cash Flows that is included in a company’s financial statements after the balance sheet and income statements.
  4. Professionals

    Cash Flow Statement Basics

    CFA Level 1 - Cash Flow Statement Basics. Learn about the components of a cash flow statement. This topic explains how to segregate a company's cash flow into three sections.
  5. Fundamental Analysis

    Analyze Cash Flow The Easy Way

    Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors.
  6. Investing

    Pro Forma

    Pro Forma is a Latin term that means "for the sake of form." It's a term mostly used in accounting, for financial statements prepared by accountants. So why would anyone do anything for the sake ...
  7. Fundamental Analysis

    Cash Flow From Investing

    Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it.
  8. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  9. Professionals

    Operating Cash Flow And Alternative Definitions Of Operating Cash Flow

    This summarizes a business's cash flows over a period of time.
  10. Term

    Cash Flow Statement and Financial Health

    A cash flow statement records the amounts of cash and cash equivalents entering and leaving a company.
RELATED TERMS
  1. Cash Flow Statement

    One of the quarterly financial reports any publicly traded company ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out ...
  3. Indirect Method

    A method for creating a statement of cash flows a company may ...
  4. Pro Forma

    A Latin term meaning "for the sake of form". In the investing ...
  5. Cash Flow From Financing Activities

    A category in the cash flow statement that accounts for external ...
  6. Cash Flow From Investing Activities

    An item on the cash flow statement that reports the aggregate ...
RELATED FAQS
  1. Can pro forma financial statements be more helpful to analysts and investors than ...

    Examine the controversy over GAAP reporting standards as compared to pro forma statements, and learn which are considered ... Read Answer >>
  2. Which pro forma financial statements should always be included in a business plan?

    Understand which pro forma financial statements should be included in a business plan and why a pro forma financial statement ... Read Answer >>
  3. What are the key differences between pro forma statements and GAAP statements?

    Learn the key differences between pro forma and GAAP statements. Review examples and cautionary notes about reliance on pro ... Read Answer >>
  4. What are pro forma earnings?

    Great question, but it is not easily answered, because pro forma earnings figures are inherently different for different ... Read Answer >>
  5. What is the purpose of drawing up a cash flow statement?

    Understand the reasons behind why a company draws up a cash flow statement. Learn how it is used to understand the trends ... Read Answer >>
  6. How is cash flow from operating activities calculated?

    Discover why cash flow from operating activities is significant to businesses, and learn the direct and indirect methods ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center