Fundamental analysis · Intermediate

Understanding the Cash Flow Statement

A 1-minute lesson from the MarketPro academy, one of 24 in fundamental analysis.

Last reviewed 15 September 2026 by the MarketPro research desk · Editorial policy

Short answer

The cash flow statement tracks the actual movement of cash into and out of a business, which can tell a very different story than the income statement's reported profit. A company can show positive net income on paper while actually burning cash, for example if a large portion of its revenue is tied up in unpaid customer invoices.

The cash flow statement tracks the actual movement of cash into and out of a business, which can tell a very different story than the income statement's reported profit.

A company can show positive net income on paper while actually burning cash, for example if a large portion of its revenue is tied up in unpaid customer invoices. This is why analysts often treat cash flow as a check on the quality of reported earnings.

Operating cash flow: cash generated from core business activities, adjusting net income for non-cash items and changes in working capital.
Investing cash flow: cash used for or generated from buying and selling long-term assets, such as equipment or acquisitions.
Financing cash flow: cash flows related to debt, share issuance or buybacks, and dividend payments.

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A useful derived figure is free cash flow — operating cash flow minus capital expenditures — which represents cash the business generates after maintaining and growing its asset base. Consistently strong free cash flow gives a company flexibility to pay down debt, return capital to shareholders, or invest in growth without relying on external financing. Weak or negative free cash flow over multiple periods, particularly alongside rising debt, is often a signal worth investigating rather than dismissing as temporary.

Lesson 10 of 24 in Fundamental analysis

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