A company's cash flow statement shows its cash inflows and outflows during an accounting period. The statement categorizes the cash flows into three sections: operating activities, investing activities and financing activities. The sum of each section's total cash flows represents either a net increase or net decrease in the company's cash balance for the accounting period. A net decrease means the company had a greater amount of cash outflows than cash inflows. You may calculate a company's net decrease in cash by reviewing its cash flow statement to determine the extent to which a company is spending cash.
Find the amounts of a company's cash flow from operating activities, cash flow from investing activities and cash flow from financing activities listed on its cash flow statement. A cash flow statement shows negative amounts, or cash outflows, in parentheses. For example, assume a company's cash flow statement shows $100,000 in cash flow from operating activities, ($150,000) in cash flow from investing activities and ($5,000) in cash flow from financing activities.
Video of the Day
Add cash flow from operating activities and cash flow from investing activities. In the example, add $100,000 and -$150,000. The result is -$50,000.
Add your result to cash flow from financing activities to calculate the net increase in cash for the accounting period. A negative result represents a net decrease, while a positive result represents a net increase. In the example, add -$50,000 and -$5,000. The result is -$55,000. This represents a net decrease of $55,000 in cash for the accounting period.
Review a company’s financial statements and earnings release to determine the underlying reason for a net decrease in cash. A company may be having trouble with its operations, which could lead to a drop in stock price, or it may be investing heavily in new assets to grow its business, which could lead to a higher stock price.