Where the cash came from and where it went
The cash flow statement groups every movement of cash into operating, investing and financing. This lesson lets you sort fifteen events into those groups, then reads Titan's real statement section by section.
- Level
- Beginner
- Reading time
- About 24 minutes
- Know this first
- The balance sheet
By the end you will be able to:
- place a cash movement in operating, investing or financing activities
- tell cash movements from events that change profit without moving cash
- read the investing and financing sections of a real statement
- describe what a pattern of signs says about a business
Three kinds of cash movement
Cash moves in and out of a business for three reasons, and the statement groups every movement under one of them. Operating activities are the day-to-day running of the business: customers paying, suppliers and staff being paid, tax. Investing activities are buying and selling long-lived assets and investments: machinery, buildings, shares in other companies. Financing activities are the dealings with those who fund the business: borrowing and repaying loans, issuing shares, paying dividends.
The split matters because the same rupee means different things in different sections. Cash received from customers says the business is selling. Cash received from a bank says it is borrowing. A reader who sees ₹100 crore flowing in cannot tell which without the groups. The lesson on cash vs profit took the operating section apart in detail. This lesson looks at all three together.
| Section | What belongs in it | Cash in | Cash out |
|---|---|---|---|
| Operating | The principal revenue-producing activities, and anything that is not investing or financing | Receipts from customers | Payments to suppliers and staff, tax |
| Investing | Buying and selling long-term assets and other investments | Sale of machinery, investments maturing, interest received | Purchase of machinery, buildings, shares in other companies |
| Financing | Changes in the size and make-up of the money from owners and lenders | New loans, new shares | Repaying loans, dividends, interest paid |
Sort fifteen events
For each event below, pick the section of the cash flow statement where it would appear. "No cash moves" is for events that change profit or the balance sheet but involve no cash that day. Pick an answer and you will see straight away whether it is right, and why.
Pick an answer for each item. 15 items.
- A school pays Meena ₹90,000 for goods delivered last month
Operating. It is cash from a customer, the core of the business.
- She pays ₹10,000 shop rent
Operating. Rent is a cost of running the shop.
- She pays her paper supplier ₹1,00,000 for stock
Operating. Stock is bought to be sold, so paying for it is part of running the business.
- She pays income tax on the year's profit
Operating. Income tax paid is shown in the operating section, as in Titan's statement.
- She pays ₹1,00,000 in cash for shelves and a counter
Investing. It is the purchase of a long-lived asset.
- She sells her old delivery van for ₹60,000 in cash
Investing. Selling a long-lived asset is the other half of buying one.
- She buys shares in another company with spare cash
Investing. Buying investments is investing.
- The bank pays interest on her fixed deposit
Investing, in the usual treatment, and in Titan's statement. It is the return on money put aside. Banks and some other lenders treat it differently, since interest is their main business.
- A bank lends the business ₹2,00,000
Financing. It is money from a lender.
- She repays ₹50,000 of the loan itself
Financing. Repaying the amount borrowed is a dealing with a lender.
- Meena puts another ₹1,00,000 of her savings into the shop
Financing. It is money from the owner.
- A company pays a dividend to its shareholders
Financing, as in Titan's statement. It is a payment to those who funded the business.
- The business pays interest on its loan
Financing in Titan's statement, where it is called finance costs paid. Some companies show interest paid in operating activities. Whichever they choose, they apply it consistently.
- The year's depreciation charge of ₹20,000
No cash moves. Depreciation is a cost in the income statement, but nothing is paid in the year. In the cash flow statement it is added back, as you saw in the cash vs profit lesson.
- She sells goods for ₹30,000 on credit and has not yet been paid
No cash moves yet. The sale is in the income statement and the receivable is on the balance sheet. The cash flow statement records the cash only when it arrives.
Items 8, 12 and 13 show that some choices are conventions, not natural law. A dividend or interest paid could reasonably be placed in operating activities, and companies in some countries do. What matters for a reader is that the statement says where it put them, and that the company does the same each year, so the sections can be compared over time.
Two ways to reach the operating figure
The operating section can be built in two ways. The direct method lists cash received from customers and cash paid to suppliers and staff. The indirect method starts from profit and corrects it for the non-cash items and the changes in working capital. Both reach the same cash figure. Titan's statement uses the indirect method, starting from profit before tax, and that is what the cash vs profit lesson followed.
The investing and financing sections are almost always shown line by line, because their items are fewer and larger. That is the part this lesson reads closely.
A real company: Titan
Titan's operating cash flow in FY2023-24 was ₹2,030 crore. The tables below show what it did with that money, and where the rest came from. Each table lists the lines of Titan's own statement for the year, with the section totals rebuilt from them. Positive figures are cash in, and figures in brackets are cash out.
| ₹ crore | FY2023-24 |
|---|---|
| Purchase of property, plant and equipment, intangibles and investment property | (529) |
| Proceeds from sale of property, plant and equipment | 9 |
| Purchase of investments in subsidiaries and other equity instruments | (4,726) |
| Investment in non-convertible debentures and government securities | (393) |
| Proceeds from redemption of non-convertible debentures | 309 |
| Inter-corporate deposits placed | (821) |
| Proceeds from inter-corporate deposits | 678 |
| Bank deposits matured | 137 |
| Sale or (purchase) of mutual funds, net | 446 |
| Lease payments received from sub-lease (excluding interest) | 47 |
| Interest received | 209 |
| Net cash used in investing activities | (4,634) |
| ₹ crore | FY2023-24 |
|---|---|
| Proceeds from long-term borrowings | 3,139 |
| Proceeds from short-term borrowings, net | 1,480 |
| Dividends paid | (888) |
| Payment of lease liabilities (excluding interest) | (258) |
| Acquisition of treasury shares | (236) |
| Finance costs paid | (480) |
| Net cash from financing activities | 2,757 |
Investing used ₹4,634 crore. The largest line, by far, was the purchase of investments in subsidiaries and other equity instruments, at ₹4,726 crore. That is almost nine times the ₹529 crore spent on property, plant and equipment and intangibles. Titan did buy and build, but the big outflow of the year went into investments in other companies.
Financing brought in ₹2,757 crore. The two borrowing lines, ₹3,139 crore of long-term borrowings and ₹1,480 crore of net short-term borrowing, add to ₹4,619 crore. From that Titan paid out ₹888 crore in dividends, ₹258 crore on lease liabilities, ₹236 crore to acquire treasury shares and ₹480 crore of finance costs. What was left was the ₹2,757 crore net inflow.
| ₹ crore | FY2023-24 | FY2022-23 |
|---|---|---|
| Net cash from operating activities | 2,030 | 1,810 |
| Net cash used in investing activities | (4,634) | (1,653) |
| Net cash from (used in) financing activities | 2,757 | (155) |
| Net change in cash | 153 | 2 |
| Cash at the start of the year | 119 | 117 |
| Cash at the end of the year | 272 | 119 |
Put the three sections together and the year's story is clear. Operations produced ₹2,030 crore. Titan spent ₹4,634 crore on investments and assets, far more than operations produced. It covered the gap by borrowing, which is why financing was a ₹2,757 crore inflow. The net result was a small rise in cash of ₹153 crore. A year earlier the pattern was different: operations produced ₹1,810 crore, investing used ₹1,653 crore, and financing was a small outflow of ₹155 crore. This is a reading of published figures, not a judgement on whether Titan's choices were wise.
Four common patterns
The signs of the three sections, read together, often describe where a business is in its life. These are tendencies, not rules.
| Pattern | Operating | Investing | Financing | Reading |
|---|---|---|---|---|
| Young and growing | Small or negative | Negative | Positive | Funded by owners and lenders while it builds |
| Established and cash-generating | Positive, large | Negative | Negative | Pays for its own growth, repays debt and pays dividends. Info Edge in FY2023-24: 8,323.96, (5,150.68), (2,848.95) (₹ million) |
| Expanding with borrowed money | Positive | Strongly negative | Positive | Spends more than it earns. Titan in FY2023-24: 2,030, (4,634), 2,757 (₹ crore) |
| Shrinking or restructuring | Weak or negative | Positive | Negative | Sells assets to repay what it owes |
Info Edge shows the second pattern. Its operations produced ₹8,323.96 million, a figure close to its profit for the year of ₹8,330.82 million, so for this year profit and operating cash were similar. It invested ₹5,150.68 million and financing used ₹2,848.95 million. Its cash rose by ₹324.33 million, to ₹1,450.42 million.
Three sections, three different shapes
Every cash flow statement sorts cash movements into operating, investing and financing, and shows the change in cash at the bottom. The table puts the latest year of Apple, Microsoft and Toyota side by side. Negative numbers are in brackets. A bracket means cash went out.
| Latest fiscal year, millions | Operating | Investing | Financing | Exchange rates | Change in cash |
|---|---|---|---|---|---|
| Apple | $111,482 | $15,195 | $(120,686) | $0 | $5,991 |
| Microsoft | $136,162 | $(72,599) | $(51,699) | $63 | $11,927 |
| Toyota | ¥3,696,934 | ¥(4,189,736) | ¥197,236 | ¥(134,090) | ¥(429,656) |
The signs are similar at the top: all three businesses generate cash from operations. The other two columns tell different stories, and the next section reads each one.
Reading the three patterns
Apple: investing is positive, financing is the big outflow. The investing section produced $15,195 million of cash even though Apple spent $12,715 million on property and equipment, because other investing flows were a net inflow of $27,910 million, mainly the purchase and sale of marketable securities. Financing used $120,686 million, of which $106,132 million (87.9%) was share repurchases and dividends. This is the pattern of a company that generates more cash than it can use inside the business and hands the surplus to its owners.
Microsoft: reinvestment first. Investing used $72,599 million, and the $64,551 million spent on property and equipment alone was 47.4% of the $136,162 million generated by operations. Financing used $51,699 million, of which $42,502 million (82.2%) went to shareholders as buybacks and dividends. The company is returning cash and, at the same time, building capacity at a pace that absorbs nearly half of what it earns.
Toyota: lending and leasing inside a manufacturer. Operations generated ¥3,696,934 million, and investing used ¥4,189,736 million, more than the operating cash. The investing section includes ¥2,996,920 million spent on equipment leased to others, vehicles that its finance arm leases to customers, in addition to ¥1,906,811 million for its own factories and equipment. Financing therefore brought in ¥197,236 million, so Toyota borrowed more than it repaid and paid dividends and buybacks besides. This is the shape of a business that funds growth, including its customers' purchases, with outside money.
One further line: the effect of exchange rates on cash held in other currencies. Toyota's was a reduction of ¥134,090 million in a year in which total cash fell ¥429,656 million. A multinational that holds cash in many currencies will always show such a line, and it is not a result of the business operating.
What counts as cash
"Cash" at the foot of the statement means cash and cash equivalents: money on hand and in bank accounts plus very short-term, safe investments that can be turned into cash quickly. Marketable securities held for longer fall outside this, which is why Apple's purchases and sales of them appear in investing and do not change its cash balance directly.
The two main standards differ on one point here. Under IFRS, a bank overdraft that is repayable on demand and forms part of a company's cash management can be counted as a negative component of cash. Under US GAAP, overdrafts are borrowings and the change in them appears in financing. A company could show the same cash position in one system and a different cash figure in the other. The classification of interest and dividends, a larger source of differences, is covered in the lesson on cash against profit.
The idea to keep is that the cash flow statement is hard to dress up. Profit can be shaped by accounting estimates, and the cash balance at the end of the year is a fact that can be checked against the bank. It is also the one statement where all three companies' patterns can be compared in the same terms, as the table shows.
Common mistakes
Treating positive cash flow as good and negative as bad
Negative investing cash flow usually means the business is spending on its future. Negative financing cash flow can mean it is repaying debt. Whether that is good depends on the rest of the picture.
Adding borrowing to the business's earnings
A company can show a large net increase in cash simply by taking a loan. Check which section the increase came from.
Reading depreciation as a cash cost
Depreciation reduces profit but not cash. It is added back in the indirect method for that reason.
Comparing statements that classify interest differently
If one company shows interest paid in operating and another in financing, their operating cash flows are not like for like. Read the policy before comparing.
Expecting the three sections to sum to the profit
They sum to the change in cash, which is a different quantity from profit. The next lesson shows how profit, cash and the balance sheet relate.
Try it yourself
1. A company starts the year with ₹40 lakh of cash. Operating activities bring in ₹25 lakh, investing uses ₹60 lakh and financing brings in ₹50 lakh. What is its cash at the end of the year?
Show the working
The net change is 25 − 60 + 50 = ₹15 lakh. The closing cash is ₹40 lakh + ₹15 lakh = ₹55 lakh.
2. Classify each: (a) buying a delivery van with cash, (b) paying wages, (c) issuing new shares for cash, (d) collecting from customers.
Show the answers
(a) Investing. (b) Operating. (c) Financing. (d) Operating.
3. A company had operating cash flow of ₹30 crore and spent ₹45 crore on investing. It borrowed ₹20 crore and paid ₹5 crore of dividends. What was the net change in cash?
Show the working
Financing is ₹20 crore − ₹5 crore = ₹15 crore. The net change is ₹30 crore − ₹45 crore + ₹15 crore = ₹0. Cash is unchanged.
4. Using the Titan tables: how much of the ₹4,634 crore it spent on investing was used for property, plant and equipment, intangibles and investment property?
Show the working
₹529 crore, which is about 11% of the investing outflow.
Where this is used
- A lender looks at operating cash flow against debt repayments to see whether the business can service its loans from its own cash.
- An analyst compares operating cash flow with profit over several years to test whether profit is turning into cash.
- A founder uses the investing section to see how much the business is putting back into growth.
- An investor reads the financing section to see whether dividends are paid from operations or from new borrowing.
Key terms
- Operating activities
- The principal revenue-producing activities of the business.
- Investing activities
- Buying and selling long-term assets and other investments.
- Financing activities
- Activities that change the size and make-up of the money from owners and lenders.
- Cash equivalents
- Short-term, highly liquid investments that can readily be turned into known amounts of cash.
- Indirect method
- Reaching operating cash flow by starting from profit and adjusting it.
- Direct method
- Reaching operating cash flow by listing cash received and paid.
- Capital expenditure
- Money spent on buying or building long-term assets.
- Treasury shares
- Shares a company has bought back or holds for later use, often through a trust.
Questions people ask
Why does the cash flow statement exist if I already have the income statement?
Because profit is measured with accrual rules that deliberately separate when something is earned from when cash moves. The cash flow statement puts the cash movements back, so a reader can see whether a profitable year was also a year of cash coming in.
Is free cash flow in the statement?
No. Free cash flow is a measure analysts build from it, usually operating cash flow less capital expenditure. The free cash flow lesson shows the calculation for Titan.
Why do tax payments sit in operating activities?
Income tax is a consequence of profit, and profit comes mainly from operations. Titan, like most companies, shows tax paid in the operating section.
Can the statement show a large inflow in investing?
Yes, when the business sells assets or investments. A large inflow there can be a one-off, and it should not be mistaken for the business earning cash from its normal activity.
Sources and review
- Titan Company Limited, audited results with statements of cash flows for the year ended 31 March 2024, filed with BSE. Source of every Titan cash flow line.
- Info Edge (India) Limited, audited standalone financial statements, Q4 FY24. Source of the cash flow totals.
- IFRS Foundation, IAS 7, Statement of Cash Flows, the international standard on which Ind AS 7 is based, for the definitions of operating, investing and financing activities and cash equivalents.
- Taxmann, Cash flow classification challenges under Ind AS 7, for the usual classification of interest and dividends paid and received.
- Apple Inc., Form 8-K, Exhibit 99.1: fourth quarter and full-year fiscal 2025 results, filed with the US Securities and Exchange Commission. Source of Apple's statements.
- Microsoft Corporation, Form 8-K, Exhibit 99.1: fourth quarter and fiscal year 2025 results, filed with the US Securities and Exchange Commission. Source of Microsoft's statements.
- Toyota Motor Corporation, FY2025 Financial Summary (IFRS, unaudited, in millions of yen), furnished to the US Securities and Exchange Commission on Form 6-K. Source of Toyota's statements.
- Deloitte, Roadmap: IFRS and US GAAP comparison, 4.3 Statement of cash flows, for the classification of interest and dividends.
How the numbers were checked: the investing and financing lines were added up and each section total matched the printed figure. Operating, investing and financing together equal the change in cash, and Titan's closing cash equals cash on its balance sheet. Info Edge's section totals sum to its change in cash, and its closing cash matches its balance sheet.