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Cash Flow Statement Analysis (+ Example)

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Cash Flow Statement Analysis
Cash flow statement analysis involves the examination and interpretation of a company’s cash flow statement, one of the three main financial statements. The cash flow statement provides insights into how cash is generated and used by a company during a specific period. It is divided into three sections: operating activities, investing activities, and financing activities.

3 Key Aspects

Key aspects of cash flow statement analysis include:

  1. Operating Activities:
    • Examining cash generated or used in the core business operations, including receipts from customers and payments to suppliers and employees.
    • Assessing the company’s ability to generate positive cash flow from its primary activities.
  2. Investing Activities:
    • Analyzing cash flows related to the acquisition and disposal of long-term assets, such as property, plant, equipment, and investments.
    • Evaluating the company’s capital expenditure decisions and investment activities.
  3. Financing Activities:
    • Reviewing cash flows associated with raising and repaying capital, including debt issuance, dividends, and stock repurchases.
    • Understanding how the company manages its capital structure and returns value to shareholders.

Key Activities

Activity Specifics & Examples Interpretation
Operating Activities Specifics: Cash flows from day-to-day business operations.

Examples: Receipts from customers, payments to suppliers and employees.

Positive operating cash flow indicates operational health.

– Negative operating cash flow may signal challenges in generating cash from core operations.

Investing Activities Specifics: Cash flows related to investments in long-term assets.

Examples: Purchase/sale of property, plant, equipment, and investments.

– Positive cash flow from investing activities suggests sound investment decisions.

– Negative cash flow may indicate capital expenditures or asset acquisitions.

Financing Activities Specifics: Cash flows from raising or repaying capital and returning value to shareholders.

Examples: Debt issuance/repayment, dividend payments, stock repurchases.

– Positive cash flow from financing activities may indicate capital infusion or debt reduction.

– Negative cash flow may indicate dividend payments or share repurchases.

Liquidity Assessment Specifics: Overall impact on cash and cash equivalents, including changes in working capital.

Examples: Change in current assets and liabilities.

– Positive impact enhances liquidity and working capital.

– Negative impact may raise concerns about liquidity management.

Free Cash Flow Specifics: Cash available after operating expenses and capital expenditures.

Calculation: Operating Cash Flow + Interest Expense + Tax Shield on Interest Expense – Capital Expenditures.

Positive free cash flow can be used for dividends, debt reduction, or investments.
Trend Analysis Comparing cash flow statements over multiple periods. Identifying trends aids in understanding changes in the company’s cash position.
Comparative Analysis Benchmarking cash flow performance against industry peers. Understanding relative standing in the industry for cash flow efficiency.

Example: Walmart Cash Flow Statement Analysis (2020 – 2023)

Activity 2020 2021 2022 2023
Net Income 15201 13510 13673 11680
Operating Activities 25255 36074 24181 28841
Investing Activities -9128 -10071 -6015 -17722
Financing Activities -14299 -16117 -22828 -17039
Net Change in Cash 1759 8273 -2954 -5993
Capital Expenditures -10705 -10264 -13106 -16857
Interest Expense (Income) -2410 -2194 -1836     –
Free Cash Flow 16960 28004 12911 11984

This data on Walmart Inc.’s cash flow statement for the years 2020 to 2023 provides insights into the company’s cash flow dynamics:

  1. Operating Activities and Net Income:
    • Walmart’s operating cash flow has shown a positive trend over the years, reaching $28,841 million in 2023. However, the net income has seen a slight decline from $15,201 million in 2020 to $11,680 million in 2023.
    • The positive trend in operating cash flow indicates the company’s ability to generate cash from its core business operations and is effectively converting its sales into cash.
  2. Investing Activities and Net Income:
    • Walmart’s negative investing activities cash flow suggests ongoing investments in the business, such as capital expenditures and acquisitions. This aligns with the company’s strategy of expanding and enhancing its operations, such as store expansions, technology, or acquisitions.
    • The decline in net income does not necessarily translate directly to decreased investment in the business, as it could be influenced by various factors such as non-operating expenses.
  3. Financing Activities and Net Income:
    • Walmart Inc.’s consistently negative financing cash flow implies payment of dividends, debt repayment, and share repurchases. Despite the decline in net income, Walmart has been able to manage its financing activities to maintain its cash flow position.
    • The consistent negative financing activities might be part of the company’s capital structure management or returning value to shareholders.
  4. Net Change in Cash:
    • The net change in cash represents the overall impact of operating, investing, and financing activities on the company’s cash position.
    • While there was positive net change in cash in 2020 and 2021, indicating a cash surplus, 2022 and 2023 show negative net changes.
    • The negative net change in cash in 2022 and 2023 is likely influenced by substantial investments and negative financing activities, despite positive operating cash flow.
  5. Free Cash Flow:
    • Free cash flow, calculated as operating cash flow minus capital expenditures, provides insight into the cash available for dividends, debt reduction, or further investments.
    • Walmart’s free cash flow has varied, with a peak in 2021 and a subsequent decrease in 2022 and 2023. The decrease in free cash flow from 2021 to 2023 suggests increased capital expenditures or changes in working capital requirements.
    • The decrease in free cash flow in 2022 and 2023 may warrant further investigation into the company’s capital allocation decisions and future growth prospects.
  6. Cash Flow Analysis:
    • Walmart has demonstrated a positive operating cash flow, indicating a healthy cash generation from its core business operations.
    • The negative net change in cash in 2022 and 2023 may be attributed to substantial investments in the business and other core financing activities.
    • It’s important to consider the reasons behind changes in net income, such as accounting adjustments or one-time events, when interpreting the financial performance.


Interpreting data obtained from a cash flow statement analysis is crucial for understanding a company’s financial health, liquidity, and operational efficiency. Here are some tips to effectively interpret the information:

  1. Focus on Operating Cash Flow: Place a significant emphasis on the operating cash flow section. It provides insights into the company’s ability to generate cash from its core business operations.
  2. Assess the Quality of Earnings: Examine the relationship between net income and operating cash flow. A positive operating cash flow that aligns with net income indicates healthy earnings quality.
  3. Evaluate Liquidity Position: Using financial ratios, analyze changes in working capital components, such as accounts receivable, inventory, and accounts payable, to assess the company’s liquidity position.
  4. Understand Investing Activities: Assess the company’s investment decisions by examining cash flows related to the acquisition and disposal of long-term assets. Positive investing cash flows may indicate strategic investments.
  5. Examine Financing Activities: Evaluate the company’s financing decisions by analyzing cash flows related to debt, dividends, and equity transactions. It provides insights into capital structure management and shareholder value.
  6. Calculate and Analyze Free Cash Flow: Compute free cash flow to understand the amount of cash available after covering operating expenses and capital expenditures. Positive free cash flow can be used for dividends, debt reduction, or investments.
  7. Consider Trends Over Time: Conduct trend analysis by comparing cash flow statements over multiple periods. Identifying consistent trends helps in understanding the company’s cash flow trajectory.
  8. Look for Consistency with Industry Benchmarks: Compare the company’s cash flow performance with industry averages or competitors. This provides context and helps assess relative standing.
  9. Assess Cash Conversion Cycle: Calculate and analyze the cash conversion cycle to understand how efficiently the company converts investments in inventory and receivables into cash.
  10. Evaluate Cash Flow Adequacy: Consider whether the operating cash flow is sufficient to cover capital expenditures, debt obligations, and dividend payments. This evaluation ensures the company’s financial sustainability.
  11. Scrutinize Non-Operating Cash Flows: Pay attention to non-operating cash flows, such as those related to extraordinary items or one-time events. Understand their impact on overall cash flow.
  12. Consider External Factors: Take into account external factors, economic conditions, or industry trends that may influence the company’s cash flow performance.
  13. Review Disclosures and Footnotes: Read accompanying disclosures and footnotes to gain additional context on accounting policies, assumptions, and potential risks.
  14. Seek Clarifications if Needed: If uncertainties or complexities arise, don’t hesitate to seek clarifications from financial statements, management, or other reliable sources.

In conclusion, the key to conducting a successful cash flow statement analysis is to focus on cash flows from operating, investing, and financing activities, assess the quality of earnings by comparing net income to cash flow activities, and consider trends over time, ensuring a thorough evaluation of a company’s liquidity, investment decisions, and financing activities.