The Cash Flow Statement shows how cash moved into, out of, and between different activities of your business over a period. While the P&L shows profit or loss, the cash flow statement shows actual cas...
Last updated Jul 22, 2026 · 4 min read
The statement organizes cash flows into three sections:
Operating activities: Cash generated from core business operations:
This shows whether operations generate sufficient cash to fund the business.
Investing activities: Cash used to buy or sell long-term assets:
This shows capital expenditure and investment strategy.
Financing activities: Cash from or used for financing the business:
This shows how you fund your business.
The statement starts from net income, shows the cash movements from the three activity categories, and ends with the total cash movement for the period, which matches the change in cash on your balance sheet.
Good to know: A profitable company can have negative cash flow if it collects receivables slowly or invests heavily in assets.
Generate your cash flow statement:
Light displays the cash flow statement organized by operating, investing, and financing activities.
Operating cash flow shows cash generated from your core business:
Light uses the indirect method: the statement starts with net income from the P&L and adjusts for changes in working capital:
Light automatically calculates these adjustments from your ledger.
Tip: Operating cash flow should generally be positive and greater than net income. If operating cash flow is negative, investigate why.
Investing cash flow shows capital expenditures and asset sales:
Cash outflows:
Cash inflows:
Calculate free cash flow = Operating Cash Flow - Capital Expenditures.
This shows cash available for debt repayment and dividends.
Financing cash flow shows how you raise and deploy capital:
Cash inflows:
Cash outflows:
This shows how your capital structure evolves.
Key metrics from the cash flow statement:
Operating cash flow ratio = Operating Cash Flow ÷ Current Liabilities
Shows ability to pay short-term obligations from operations. A ratio > 1 indicates strong operational liquidity.
Free cash flow = Operating Cash Flow - Capital Expenditures
Shows cash available after necessary reinvestment. Used for debt repayment, dividends, and acquisitions.
Cash conversion rate = Operating Cash Flow ÷ Net Income
Shows what percentage of profit is converted to cash. >100% indicates working capital efficiency.
Capital expenditure ratio = Capital Expenditures ÷ Revenue
Shows investment intensity relative to sales.
Compare cash flow to prior periods:
This identifies cash flow trends and movements.
The cash flow statement reveals working capital dynamics:
Operating working capital = Current Assets - Current Liabilities
Tie up in inventory, receivables, and payables.
Cash conversion cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding
Shows how long cash is tied up in operations. Shorter cycles are better.
For organizations with multiple entities:
Light automatically handles these consolidation mechanics.
Report cash flow in different currencies:
For multinational companies:
Assess your ability to pay dividends:
Dividend coverage ratio = Operating Cash Flow ÷ Dividends Paid
Shows how many times over you can fund dividends from operations. >2.0x is generally healthy.
For borrowers, lenders evaluate your ability to service debt:
Debt service coverage ratio = Operating Cash Flow ÷ Debt Service
(Debt service = principal + interest payments)
Understand your tax cash outflows:
This supports tax planning.
Export cash flow for external distribution:
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