Module I· Cash Flow Statement ConstructionBasic
Question
What are the three sections of the cash flow statement?
Answer
Mechanics
The cash flow statement breaks down into three sections:
- CFO / OCF: cash from operations. Start: net income (indirect method), adjusted for non-cash items and working-capital changes.
- CFI / ICF: cash from investing — capex, M&A, asset sales, securities purchases/sales. Typically negative at growing companies.
- CFF: cash from financing — debt raises/repayments, dividends, equity issuance, buybacks.
Formula
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Sum of 3 sections + beginning cash = ending cash → balance sheet
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IB focus
OCF is the most important section — operating cash generation drives valuation and debt capacity.