CFP

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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

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