A cash flow statement specifies the amount of money available in a business to keep it afloat. It may include a cash flow forecast which gives an estimate of how much money will be available in a business at a particular period. A cash flow statement can be of two types: actual cash flow statements and forecast cash flow statements. A cash flow statement breaks down analysis into operating, investing and financial activities. Statements of cash flow are normally used to verify the short-term viability of a business.
Operational activities in a cash flow system is a sum total of the day-to-day running costs of a business. Such activities include production, sales and delivery of products. Operational activities such as purchasing of raw materials, marketing and shipping of a product as well as collecting payments from customers form the core of these activities. Under the International Accounting Standards (IAS), operating cash flows additionally include payments to employees, interest payments and interest received on loans.
Investment activities in a cash flow statement mainly involve the outflow of cash from a company for investment purposes. The acquisition of assets such as equipment, buildings for various purposes, marketable securities and lands among others are examples of investment activities. Other investment activities include loans made to suppliers and payments related to mergers and acquisitions.
Financing activities include inflow of cash from private investors and financial institutions such as shareholders and banks. Dividends paid out to shareholders and interest payments made to banks make up the cash outflow section of financing activities. The International Accounting Standard also puts forward specific business activities that make up financing activities which include repayment of debts, payment for repurchase of company shares and proceeds from debt issuance.