What Are the Major Sources of Inflows of Cash in Cash Flow Statements?
The three major sources of inflows of cash on a cash flow statements are operating activities, investing activities and financing activities. A statement of cash flows is one of the three major financial statements, in addition to the balance sheet and income statement.
A statement of cash flows serves to explain to investors where a company’s cash comes from and how it is used, based on three distinct categories of income activities. Investors often favor companies with a large free cash flow, as this indicates financial stability.
Operating activities, the first of the major sources of cash inflows, refers to the normal activities of a business, such as the sale of inventory or payments made to employees. This is the largest of the three activities that make up a statement of cash flows.
Investing activities are expenditures on business investments, such as new equipment or a new plot of land to use in a construction project. Investing activities support a company without contributing to the normal course of business.
Financing activities are business procedures that earn or expend cash on financial transactions, such as bank loans or stock sales. Financing activities are generally the smallest category on a statement of cash flows.