Cash Flow Statement

A company can show Profit on paper but still go Bankrupt. How? Because Profit ≠ Cash.

The Cash Flow Statement shows the actual cash coming in and going out.

1. The 3 Sections

A. Operating Activities (CFO)

Cash from the core business.

• Inflows: Cash received from customers.
• Outflows: Cash paid to suppliers, employees, rent.

Formula: Net Income + Adjustments (Depreciation, Changes in Working Capital)

Example:

• Net Income: ₹100 Cr.
• Add: Depreciation ₹20 Cr (Non-cash expense).
• Subtract: Increase in Receivables ₹30 Cr (Sold on credit, cash not received).
• CFO: ₹90 Cr.

B. Investing Activities (CFI)

Cash spent on long-term assets or received from their sale.

• Outflows: Buying machinery, land, investments.
• Inflows: Selling assets.

Example: Company buys a factory for ₹50 Cr. CFI = -₹50 Cr.

C. Financing Activities (CFF)

Cash from investors and lenders.

• Inflows: Issuing shares, taking loans.
• Outflows: Repaying loans, paying dividends.

Example: Company raises ₹100 Cr via IPO. CFF = +₹100 Cr.

2. The Formula

Net Change in Cash = CFO + CFI + CFF

3. Interpretation (The Detective Work)

CFO	CFI	CFF	Interpretation
+	-	-	Healthy (Generating cash, investing, paying debt)
-	-	+	Warning (Burning cash, borrowing to survive)
+	+	-	Mature (Selling assets to pay debt, maybe declining)
-	+	+	Distress (Selling assets and borrowing to cover losses)

4. Why CFO Matters Most

• Positive CFO: Company generates cash from operations (Good!).
• Negative CFO: Company is burning cash (Red Flag).

Example:

• Zomato (2020): Net Loss ₹2,000 Cr. But CFO was improving (Less cash burn).
• Kingfisher Airlines: Showed profit but negative CFO for years. Eventually collapsed.

5. Cash vs Profit (Example)

Scenario:

• You sell goods worth ₹100 on credit (Receivable).
• P&L: Revenue = ₹100. Profit = ₹20.
• Cash Flow: Cash = ₹0 (Customer hasn't paid yet).

This is why profitable companies can face Cash Crunch.

7-Day Action Plan

Day 1: Download the Annual Report of any company (e.g., Reliance). Find the Cash Flow Statement.
Day 2: Check CFO for the last 3 years. Is it positive and growing?
Day 3: Compare "Net Income" vs "CFO". If CFO is much lower, dig deeper (Quality of Earnings issue).
Day 4: Look at CFI. Is the company investing in growth (Negative CFI) or liquidating assets (Positive CFI)?
Day 5: Check CFF. Is the company raising debt every year? (Risky).
Day 6: Calculate "Free Cash Flow (FCF)" = CFO - Capital Expenditure (CapEx from CFI).
Day 7: Read Warren Buffett's quote: "Cash flow is the lifeblood of a business."

Quiz

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💡 Final Wisdom: "Cash flow is oxygen for a business. Without it, you suffocate." Always check CFO before investing.