What are the three sections of the cash flow statement?

The cash flow statement sorts every dollar of cash movement into exactly three buckets, by why the cash moved. Learn the three and the whole statement becomes readable.

1. Operating activities (CFO)

Cash from running the business — the core engine. It starts with net income and adjusts it back to cash:

• Add back non-cash expenses — depreciation and amortization reduced profit but no cash left, so add them back.
• Adjust for working capital — if receivables rose, customers owe more and cash is tighter (subtract); if the company delayed paying suppliers (payables rose), cash is looser (add).

This section answers: does the actual business generate cash? For a healthy mature company, this is the biggest and most positive number on the statement.

2. Investing activities (CFI)

Cash spent on or received from long-term assets:

• Buying property and equipment — capital expenditure (capex) — a cash outflow.
• Acquiring another company — outflow.
• Selling a division or investments — inflow.

Investing cash flow is usually negative for a growing company, and that's healthy — it's spending to build future capacity. A consistently positive investing line can mean a company is selling off assets, which is worth understanding.

3. Financing activities (CFF)

Cash exchanged with lenders and owners:

• Borrowing money — inflow; repaying debt — outflow.
• Issuing new shares — inflow; buying back shares — outflow.
• Paying dividends — outflow.

This section shows how the company funds itself and what it returns to investors.

The three add up to the truth

CFO + CFI + CFF = the net change in cash for the period — which, once the separately reported currency-translation line is added for filers who have one, ties to the change in the cash line on the balance sheet. The statement literally connects to the snapshot. Nothing floats free.

A rounded illustration

A mature company might show: CFO +$20B (strong engine), CFI −$8B (building factories), CFF −$10B (paying dividends and repaying debt). Net change: +$2B cash. The shape — big positive operating, negative investing, negative financing — is the classic profile of a self-funding, cash-returning business. Describe the shape; don't grade it.

In the data

Apple's latest year, as the three section totals and the line they close into:

Operating, investing and financing sit one under another, and the net change in cash at the bottom is what moves the cash line on the balance sheet. The three do not always add exactly to it, because a company with foreign cash reports the effect of exchange-rate moves on that cash as a line of its own. The exchange-rate row is blank for a company that reports no such line, which is not the same as reporting zero.

Try it now

1. Identify the three section totals in the table above (operating, investing, financing) and note the sign of each.
2. Add the three and compare the sum to net change in cash. Then look at the exchange-rate row: an em dash there means the filer reports no currency-translation line, which is why the three do not always add exactly.
3. Read the sign pattern (+/−/−, or another mix) and describe in one sentence what kind of company it suggests. Observation only.
4. Do the same for a company that is raising money rather than returning it:

A positive financing line is a completely different sentence from a negative one. Find the row that says where most of the money came from.