Cash flow statement

Definition

The statement tying reported profit to the cash actually collected.

Why It Matters

It answers the question that unsettles every first-time buyer, which is why a profitable business can be short of money. Profit is an accounting result and cash is a fact, and the gap between them is inventory bought, receivables not yet collected, and debt repaid. A buyer servicing a loan is paid out of the cash, not the profit, so this is the statement that says whether the deal survives its own debt.

In numbers: A shop shows $600k of profit and a falling bank balance; the cash flow statement shows why, with $270k gone into receivables and inventory, which is the working-capital story the P&L cannot tell.