## Investors Should Look at Cashflow Not Less Than the Income Statement

When analyzing a company's financial statements, many focus primarily on the income statement. However, the cash flow statement is equally important because it shows how much actual cash the company has on hand and how it can be used for various expenses. This is what truly drives the business forward.

## Where Does Cash Come From? Where Does It Go? The Cash Flow Statement Tells All

The cash flow statement (Cash Flow Statement) contrasts with the balance sheet and income statement. It doesn't tell the story of profit or assets but focuses on money—cash inflows and outflows. A company might report high profits, but if the cash isn't actually in their bank accounts, it doesn't help much in real management.

**Balance Sheet (Balance Sheet)** provides an overview on the closing date of assets, liabilities, and equity.

**Income Statement (Income Statement)** shows the operational results—how much profit or loss the company made over a year, quarter, or half-year.

**Cash Flow Statement (Cash Flow Statement)** indicates whether the company has enough actual cash to keep the business running after the accounting period.

Together, these three form the core of (Fundamental Analysis), helping investors evaluate stock value and select promising companies.

## Where Does Cash Flow Come From? 3 Channels to Watch

Cash movement within a company is divided into three channels:

**1. Operating Activities (Operating Activities)**
Cash generated from selling goods and services, and cash paid for costs, taxes, and regular expenses. This channel aligns with the company's core operations. If most cash inflow comes from here, it indicates steady and reliable cash flow.

**2. Investing Activities (Investing Activities)**
Cash from selling assets like land, securities, and cash paid for acquiring long-term assets such as machinery and technology. This shows whether the company is investing for growth.

**3. Financing Activities (Financing Activities)**
Cash from issuing debt or new shares, and cash paid back for debt repayment or share buybacks. This channel reveals where the company gets its money and how it returns it.

## What Does a Good Cash Flow Statement Look Like?

A secret is that having a lot of cash doesn't necessarily mean it's good, as it might mean missed opportunities for investment or profit generation. Conversely, negative cash flow isn't always bad—it could be due to large future investments.

Key points to consider:

**Assess Operating Cash Flow**
If most cash comes from operating activities, it indicates genuine business performance, not just asset sales or one-time transactions. Be cautious if the overall cash flow is positive but operating cash flow is negative, as this might mean the positive cash flow is from asset sales or one-off items, which may not be sustainable.

**Assess Investing Cash Flow**
Negative cash flow here isn't necessarily bad. Growth-oriented companies need to continually invest in machinery and technology. Negative cash flow might mean the company is planning for future growth, while positive cash flow could mean asset sales, which are one-time gains.

**Assess Financing Cash Flow**
If negative, it indicates the company is paying down debt or buying back shares, which is a sign of financial strength. If positive consistently, it might mean the company is borrowing more, which could pose long-term risks.

## Microsoft: An Example of a Good Cash Flow Statement

Looking at Microsoft's cash flow from 2020 to 2023 reveals a very positive story.

Cash from operating activities increased from $60 billion to $87 billion in 2023, indicating strong cash flow and that Microsoft is selling its services and products well.

Microsoft invests about a quarter of its operating cash flow, which is reasonable for upgrades and growth, leaving a strong (Free Cash Flow).

Interestingly, Microsoft continuously uses $40-$50 billion to $60 billion from financing activities, mostly through share buybacks, signaling confidence in shareholders and smart capital structure management.

Finally, Microsoft still has a free cash flow of $50-(billion, demonstrating financial robustness.

## Summary

The )Cash Flow Statement truly reflects a company's financial health—not just the bottom-line figures. Investors should analyze cash from operating, investing, and financing activities to understand whether the company's financial position is truly sustainable before making investment decisions.