Alright now we're going to discuss the statement of cash flows. This is one of the tougher units in the course. So make sure to pay close attention. Let's start with an introduction. So the statement of cash flows. Remember we have our four main financial statements, we've dealt a lot with the balance sheet and the income statement, the statement of retained earnings or the statement of stockholders equity tells us the changes in stockholders equity or retained earnings. Right? And that's where we deal with dividends here. The statement of cash flows, it helps us get from our beginning cash balance to our ending cash balance right? We start we begin with some cash balance and then we're gonna have all sorts of additions to cash and subtractions to cash throughout the period that gets us to the ending cash balance. Right? So the statement of cash flows focuses on these additions and subtractions. What got us from the beginning cash to the ending cash. A lot of things happen in the cash account and we want to summarize them here with the cash flow statement. Okay, so why do we use the statement of cash flows? Well, first, it has predictive values. A lot of investors are interested in the cash flows of the company. From a financial perspective from finance perspective, they are definitely focused on cash flows. So a lot of investors focused on cash flows and the statement of cash flows is a great place for that information. It gives predictive value of future cash flows based on the past cash flows. How how's the company doing now? Well, that gives us the predictive value of what it's going to be doing in the future. It helps us evaluate management, right? Because we can evaluate how management uh uses cash flows, the cash that it brings into the business and how it uses it in the business. It determines the company's ability to pay right when we have to pay interest or pay dividends. Well, we need cash to do those transactions. So, the statement of cash flows is a good place to get information about that. And it, lastly, it gives us a little more information between the relationship of net income and cash flow. Remember that net income by itself is not a cash amount, right? Net income deals with revenues and expenses that are not always cash based. Sometimes we'll have a revenue that we don't receive the cash for it yet. Right. We'll have an account receivable for the future. Well, we want to make comparisons of that net income and cash flow. Maybe we have huge income, but not much cash flow coming in. Right. That could signify a problem. Okay, so that's the main reason why the statement of cash flow is important. Now, let's start discussing a little more details about the statement of cash flows itself. It's going to be organized into three main sections. Okay. We're gonna see three sections that we're going to become very familiar with throughout this chapter. So, the first section is the operating activities operating activities. This is where we deal with operations, right? The core business of the company. We want to see the cash flows that are generated through operations. So this these operating activities, they create revenues, expenses, the gains and losses, right? They deal with net income that comes from the income statement. Right? So we want to see this net income and the relationship it has the cash flow that comes from these operating activities. So like I said, it represents the core business and it's obvious that a successful business should be generating cash flows from operations. Right? We're in business to do this core business of ours. And if we can't generate positive cash flows, well, that's a red flag that we might go bankrupt in the future. So we must be generating positive cash flows to be a successful business. Maybe we'll have a period where we don't have operating cash flows. But in general we want to be seeing positive operating cash flows or it's just not gonna work. Okay, so when we talk about operating activities, we're gonna be focused on current assets and liabilities. Okay. When you think about our operations, were generally dealing with our current assets and current liabilities on our day to day basis. Right? And we're talking about specifically operating current assets and liabilities, right. When we think about operating current assets and liabilities, that's things like current assets. Excuse me, like accounts receivable inventory, right? Prepaid expenses, things that we use in our day, day to day operations or accounts payable and accrued expenses, right? These types of operating assets and liabilities. While these, these are the things that we deal with in our day to day operations. So our operating activities is generally dealing with that relationship between net income and operating cash flows. Cool. The next section. So notice we have three sections. This is the first section, arguably the most important section, because that's our core business. Then we have the investing section. So the investing section relates to the purchase and sale of long term assets. Okay, so this is when we're buying equipment or selling equipment for cash. Well, that's always gonna be an investing activity. We're gonna be dealing with our investments in long term assets as well as in long term investments. Maybe we buy some uh, equity or debt investment that we're gonna have for a long period of time. Well, that would be in the investing section. And remember, we're focused on cash. Right? This is the statement of cash flows. And finally, the third section is our financing activities. So we've got operating activities, investing activities, and financing activities. So notice we've talked about current assets and liabilities. We've talked about long term assets. Well, guess what? The financing activities? They deal with our investors and our creditors. And it's the rest of our balance sheet. So notice we're talking about our balance sheet here, right? The current assets and liabilities from our balance sheet, the long term assets from our balance sheet. And then the finance activities, they deal with our long term liabilities and our stockholders equity. So that's every part of our balance sheet is now being uh focused on through our cash flow statement. Okay, so now we're taking everything from a cash perspective on our cash flow statement. So, down here, I have a nice little summary of our our cash flow statement and how it relates to our balance sheet. We've got our operating cash flows, dealing with our current assets and current liabilities. We've got our investing cash flows, dealing with our long term assets. Right, do this in a different color. So operating cash flows, current assets and current liabilities. And then financing cash flows, deals with the long term liabilities and stockholders equity. So that deals with our entire balance sheet there. Okay, so that's gonna be the focus and we're gonna deal with each of these cash flows separately. We're gonna start with our operating cash flows. Then we'll get to the investing cash flows and the financing cash flows. Okay, so let's start with a little practice problem here and then I'm gonna show you a uh a cash flow statement on the next page