Indirect Method for Statement of Cash Flows

The Statement of Cash Flows is an important financial tool for assessing the health of a company. 

Are you able to actually pay your bills?

Is enough money coming in to get through the year?

Can you buy that new piece of equipment?

There are three components to a Statement of Cash Flows:

1. Cash from Operating Activities. This can be calculated using the indirect or the direct method. This section analyzes cash flow relating to revenue and expenses. 

2. Cash from Investing Activities. This section looks at the cash into the company and leaving the company for long-term assets. Basically this section is the purchase or sale of property, plant or equipment. 

3. Cash from Financing Activities. This section looks at the cash flow of the repayment or issuing of long-term liabilities like loans and bonds. It also looks at the cash out for paying for dividends.  

Check out the video for a walkthrough of the Statement of Cash Flows, the indirect method for the cash from operating activities and an example problem. All in less than 10 min.