The Cash Flow Statement
Why a profitable company can run out of cash, and how the statement of cash flows explains the difference.
Three activities
Operating (day-to-day business), Investing (assets purchased or sold), and Financing (equity raised, debt taken or repaid). Net change ties to the cash movement on the balance sheet.
Indirect method
Start with Net Income, add back non-cash items (depreciation, amortization), then adjust for changes in working capital. This is how almost every software tool produces it.
Cash burn and runway
Monthly operating cash flow (usually negative early) divided into cash on hand equals runway in months. This is the single most-asked number in any funding conversation.
Key takeaways
- Operating, Investing, Financing — that's the structure.
- Indirect method starts with Net Income.
- Runway = cash / monthly burn. Know it cold.