The Cash Flow Statement

Revenue is an opinion. Cash is a fact. The cash flow statement reconciles the difference between what the P&L says you earned and what actually moved through your bank account. A company can be profitable on the P&L and bankrupt in reality — because accrual accounting books revenue when earned, not when collected. The cash flow statement tells you the truth the P&L is allowed to defer.

1. Operating Cash Flow (OCF) Cash generated from core business operations. Start with net income, add back non-cash expenses (depreciation, stock-based compensation), and adjust for changes in working capital. If OCF is consistently negative while the P&L shows profit, your business model collects revenue slower than it incurs costs. That is a liquidity problem wearing a profitability mask.
2. Investing Cash Flow Cash spent on long-term assets: property, equipment, acquisitions, capitalized software development. Negative investing cash flow is normal — it means you are investing in growth. But track the ratio of investing cash flow to operating cash flow. If you are investing more than you generate, you are funding growth from reserves or debt.
3. Financing Cash Flow Cash from investors (equity raises), lenders (debt), and shareholder returns (dividends, buybacks). Positive financing cash flow means outside capital is funding the business. Negative means the business is returning capital. Neither is inherently good or bad — the question is whether the source matches the stage.

Free Cash Flow (FCF) = Operating Cash Flow - Capital Expenditures

Example:
  Operating Cash Flow:   $2,400,000
  Capital Expenditures:  ($800,000)
  ─────────────────────────────────
  Free Cash Flow:        $1,600,000

FCF is the cash available for debt repayment,
dividends, buybacks, or reinvestment.
It is the truest measure of financial health.