How to Analyze a Cash Flow Statement

Tracks how cash moves in and out of a business over time – key for assessing financial health and operational efficiency.

Three Main Sections:

1. Operating Activities – Cash from core business operations (e.g., net income, depreciation, working capital changes).
2. Investing Activities – Cash used for or earned from investments (e.g., buying equipment, acquisitions, selling assets).
3. Financing Activities – Cash from funding sources (e.g., issuing stock, taking loans, paying dividends).

Bottom Line:
Add all three sections to see the net change in cash. A strong operating cash flow is usually a good sign.

How to Analyze a Balance Sheet

A balance sheet shows what a company owns (assets) and owes (liabilities) at a specific point in time, plus what’s left for shareholders (equity).

Key Components:

• Assets – What the company owns (e.g., cash, inventory, receivables).
• Liabilities – What the company owes (e.g., accounts payable, debt).
• Shareholders’ Equity – What’s left for owners after liabilities are paid.

Snapshot vs. Flow:
Unlike income or cash flow statements (which show activity over time), a balance sheet is a snapshot of financial position at one moment.

Liquidity Insight:

• Most liquid asset: Cash
• Least liquid: Inventory
• Short-term liabilities: Due within 1 year (e.g., accounts payable, short-term debt)

Equity Breakdown:

• Includes retained earnings and common stock—represents ownership value.