The cash flow statement shows how a company generated and spent cash throughout a given timeframe. An important truth that is frequently neglected by inexperienced business owners is that profit does not equal cash. Every business owner and manager needs to have a clear idea of the cash flows their company produces and how this impacts near and long-term performance.
We can distinguish between direct and indirect cash flow statements. A direct cash flow statement is based on data about the actual inflows and outflows the company had during a given period. This type of cash flow statement can be prepared by company insiders only. On the other hand, the indirect method uses the P&L and the Balance sheet items to obtain cash flows and give an idea how the money was generated and spent during the period under consideration.
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Cash Flow is among the topics included in the Corporate Finance module of the CFA Level 1 Curriculum.