The Basics of a Cash Flow Statement explained from scratch 🏧🎰🧮

In this thread we will talk about -

1. How Cash flow statement is made?
2. What is CFO,CFI and CFF?
3. Why is CFO/Ebitda important?
4. Finally, we will talk about Free Cash flow statement

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A Cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a particular period.

The net cash flow at the end of the year tells us about the movement of cash on the balance sheet.

Why is cash flow important? ⤵️

Companies maintain books of accounts as per accrual principle, that means we book revenue or expense as and when it is incurred.

Let's say we make sales of 10,000 so we will record it as when sale is completed and prepare P&L accordingly, here it doesn't matter whether cash is received or not.

Cash flow helps us in knowing whether that 10,000 has been received in cash or not.

For Example:- There are 2 companies selling T-shirts and doing the following transactions: