The Cash Flow Statement (What Really Matters)

For companies that are generating positive cash flows (see below), the cash flow statement becomes the most critical piece of accounting as it tracks the movement of real cash (not adjusted for accounting values like depreciation). It is possible, through accounting metrics, that companies can be generating tons of cash, but not show any profits (and vice versa!). This is why cash flows matter. There are three cash flow buckets to track:

Cash Flows from Operations
Net Income	$5,981
Depreciation	$1,163
Amortization	$125
Total CFO	$7,269

Cash Flows from Investing
Capital Expenditures	- S1,648
Other Investing Items	-$5,071
Total CFI	-$6,719

Cash Flow From Operations (CFO): CFO starts with net profits and adds back the value of depreciation and amortization (a theoretical accounting expense, not an actual cash expense) to demonstrate the amount of cash generated from (or used) in the operations of the business.

Cash Flow from Investing (CFI): CFI captures the amount of cash used to invest in long term assets and R&D projects (and all the property, plant, and equipment necessary for purchase). Companies with very negative CFI are investing aggressively.

Cash Flow from Financing (CFF): CFF captures the cash flows used (paying down debts) or raised (borrowing or increasing debt) from financing activities. This cash flow measure will be rare for early stage companies and nonexistent for those companies that have not issued or raised financing or pay dividends.

The sum of CFO, CFI, and CFF will provide the net change in cash from the company over a given time period. For VCs, this will most often simply look like the cash raised from business operations plus any capital raised from investors less any amount of cash spent on things like R&D or large asset purchases.