Getting Started: The Statement of Cash Flows

Operating activities: The operating section of the statement of cash flows tells you how cash changed hands as a result of a company's operations. Anything that's involved in what a company does to make money (for example, a shirt manufacturer making shirts) is considered an operating activity.

Unlike operating items on the income statement, the operating section includes things such as dividend income and gains or losses from the sale of investments. Even though such items are not part of operations per se, they're included in this section because they're part of the company's income.

As an investor, you'll want to see two things in the operating section: Cash inflows and cash outflows. Sure, a company that doesn't have outflows sounds nice; lots of money coming in, none going out. But business is cyclical: Goods get sold, and materials get purchased to make more goods (and so on), so any healthy company should have a reasonable amount of both money coming in and money going out. Naturally, though, a positive net operating cash flow is a good sign.

Investing activities: Like you, companies invest to make money. Unlike you, not all of these investments are in other entities; a company also has to reinvest in itself. For a company to grow, it has to spend money on upgrading things such as facilities, equipment and staffing -- all of these cash flows are found under the investing section.