 Statement of cash flow or cash flow statement is the third statement that is prepared along with the income statement and the balance sheet. This is prepared in accordance with the accounting rules by every firm for its accounting users. To prepare accounting statement of cash flows, a firm needs to determine changes in three different classes. Like a firm needs to determine operating cash flows, investing cash flows and financing cash flows. Now, to determine cash flows under these heads did a certain mechanism. To determine operating cash flows, we have to prepare an operating activities section. In this section, we adjust net income for depreciation, deferred taxes and changes in current assets and current liabilities. The resulting figure would be the operating activities. Now, we can say that there are four items that a firm needs to adjust in its net income. These are the non-cash items, non-operating items and changes in its net working capital items. To determine investing cash flows, the firm needs to prepare investing activities section. By investing activities, we mean the acquisition and disposal of fixed assets. On the screen, you can see that from investing activities, the firm has generated cash flows of 173 S negative. As we see that a cash flow statement is comprised of three different sections. The first one is operating activities section. Cash flows from operating activities are computed by adjusting net income for non-cash items, non-operating items and changes in net working capital items. On the screen, you can see that for net income, there is an adjustment of non-cash items in terms of depreciation and deferred taxes. The second adjustment is in terms of changes in net working capital items. And by adjusting these two classes of items into net income, we have determined operating cash flows at $207 million. The second section of cash flow statement is investing activities section. From investing activities, cash flows can be determined while comparing the acquisition of fixed assets and the sales of fixed assets. So in this section, we place acquisition and disposal of the fixed assets. On the screen, you can see that there is a negative amount of $198. This means this is the cash outflow paid by the firm to acquire fixed assets. And $25 million is the positive value. This is the cash flows received by the firm upon the sale of fixed assets. Now the net cash flows from investing activities in this particular example is the negative $173 million. This may be termed as cash used in the investing activities. One thing we should note here, that for growing firms, investing cash flows are generally negative because such firms keep on investing cash in their assets. The third and last class of cash flow statement is the financing activities section. To determine cash flows from financing activities, we use two items. The first is the debt portion and second is the stock portion or equity section. In the debt portion, we use two items, the retirement of long-term debt or other liabilities and proceeds from the issuance of long-term debt or receipt of other loans from the financial institutions or the public. The second item we use is the stockholders' equity. Again we place two items in this section. The first is the repurchase of stock which shows cash outflows and the proceeds from the issuance of new stock which is shown as cash inflows. Along with these two broad categories, we have another small item and that is the dividends paid to the shareholders. These dividends are placed here as negative cash flow or cash outflow. When we see on the screen net result in the financing activities, we see a positive cash flow from the financing activities which is $7 million. This means that firm has succeeded in raising a surplus cash inflow while making payment to the debt holders and the equity holders. Now on the screen, you see a complete format of the statement of cash flows. We have separately determined cash flows from operating activities, investing activities and financing activities. When we combine these all three sections into a single format, the format is called as cash flow statement. On the screen, you see there is $207 million cash flow generated from operation. This is called as the section of operating activities. The next class is investing activities. There is a negative cash inflow and the last class is the financing activities. A positive cash flow of $7 million is there. Now when we combine all these three cash flows, we come across a net value of $41 million. This $41 million will be termed as a net change in cash and cash equivalents over a certain period of time. This means that firm has paid certain amount of cash during the year and received certain amount of cash during the same year. The net change is the $41 million excess cash received during the particular period. So the basic purpose of cash flow statement is to classify cash flows among different heads and to determine the overall change in the cash during the certain period of time.