Cash Flow Statement Example: Templates, Formulas & Analysis for 2026
Updated March 2026 · 15 min read · 6,600 monthly searches
Bottom Line: The cash flow statement reveals what the income statement hides: where cash actually comes from and goes. It's divided into three sections — operating, investing, and financing activities — and can be prepared using the direct or indirect method. For advisory professionals, cash flow analysis is the #1 skill that separates bookkeepers from CFOs.
What Is a Cash Flow Statement?
The statement of cash flows (cash flow statement) is one of the three core financial statements, alongside the income statement and balance sheet. While the income statement shows profitability on an accrual basis, the cash flow statement shows actual cash movements during a period.
This matters because a business can be profitable on paper while running out of cash. In fact, 82% of small businesses that fail cite cash flow problems as a primary reason — not lack of profit.
The Three Sections
| Section | What It Covers | Examples |
|---|---|---|
| Operating Activities | Day-to-day business operations | Customer receipts, vendor payments, payroll, taxes |
| Investing Activities | Long-term asset purchases and sales | Equipment, vehicles, property, investments |
| Financing Activities | Funding the business | Loans, owner contributions, dividends, debt repayment |
Cash Flow Statement Example: Indirect Method
The indirect method (used by 95%+ of businesses) starts with net income and adjusts for non-cash items and changes in working capital.
ABC Plumbing Services — Statement of Cash Flows
For the Year Ended December 31, 2025
OPERATING ACTIVITIES
Net Income ............................ $145,000
Adjustments for non-cash items:
Depreciation expense .............. $28,000
Loss on disposal of equipment ..... $3,500
Changes in working capital:
Accounts receivable (increase) .... ($22,000)
Inventory (increase) .............. ($8,500)
Prepaid expenses (decrease) ....... $2,000
Accounts payable (increase) ....... $15,000
Accrued expenses (increase) ....... $6,500
Net cash from operating .............. $169,500
INVESTING ACTIVITIES
Purchase of service vehicles .......... ($65,000)
Purchase of equipment ................. ($12,000)
Proceeds from equipment sale .......... $4,500
Net cash from investing .............. ($72,500)
FINANCING ACTIVITIES
Proceeds from bank loan ............... $50,000
Loan repayments ....................... ($35,000)
Owner distributions ................... ($80,000)
Net cash from financing .............. ($65,000)
NET CHANGE IN CASH ................... $32,000
Beginning cash balance ................ $48,000
Ending cash balance .................. $80,000
For the Year Ended December 31, 2025
OPERATING ACTIVITIES
Net Income ............................ $145,000
Adjustments for non-cash items:
Depreciation expense .............. $28,000
Loss on disposal of equipment ..... $3,500
Changes in working capital:
Accounts receivable (increase) .... ($22,000)
Inventory (increase) .............. ($8,500)
Prepaid expenses (decrease) ....... $2,000
Accounts payable (increase) ....... $15,000
Accrued expenses (increase) ....... $6,500
Net cash from operating .............. $169,500
INVESTING ACTIVITIES
Purchase of service vehicles .......... ($65,000)
Purchase of equipment ................. ($12,000)
Proceeds from equipment sale .......... $4,500
Net cash from investing .............. ($72,500)
FINANCING ACTIVITIES
Proceeds from bank loan ............... $50,000
Loan repayments ....................... ($35,000)
Owner distributions ................... ($80,000)
Net cash from financing .............. ($65,000)
NET CHANGE IN CASH ................... $32,000
Beginning cash balance ................ $48,000
Ending cash balance .................. $80,000
Direct Method Example
The direct method shows actual cash receipts and payments. While more intuitive, it requires more detailed records.
ABC Plumbing Services — Cash Flow (Direct Method)
Operating Section Only
CASH INFLOWS
Cash received from customers .......... $892,000
Cash received from insurance claims ... $15,000
Total cash inflows ................... $907,000
CASH OUTFLOWS
Cash paid to suppliers ................ ($285,000)
Cash paid to employees ................ ($342,000)
Cash paid for rent .................... ($48,000)
Cash paid for insurance ............... ($24,000)
Cash paid for taxes ................... ($38,500)
Total cash outflows .................. ($737,500)
Net cash from operating .............. $169,500
Operating Section Only
CASH INFLOWS
Cash received from customers .......... $892,000
Cash received from insurance claims ... $15,000
Total cash inflows ................... $907,000
CASH OUTFLOWS
Cash paid to suppliers ................ ($285,000)
Cash paid to employees ................ ($342,000)
Cash paid for rent .................... ($48,000)
Cash paid for insurance ............... ($24,000)
Cash paid for taxes ................... ($38,500)
Total cash outflows .................. ($737,500)
Net cash from operating .............. $169,500
How to Analyze a Cash Flow Statement
Reading a cash flow statement is one thing. Analyzing it for actionable insights is what makes you an advisor.
Key Analysis Points
- Operating cash flow vs. net income: If net income is $145K but operating cash flow is only $50K, something is wrong (usually AR or inventory problems)
- Free cash flow: Operating cash flow minus capital expenditures. This is what's truly available to the business
- Cash flow trends: Three years of declining operating cash flow is a red flag even if revenue is growing
- Cash flow quality: Is operating cash flow driven by real customer payments, or by delaying vendor payments?
- Sustainability: Are financing activities (loans) funding operations? That's unsustainable.
Red Flags to Watch For
- Operating cash flow consistently below net income → aggressive revenue recognition or AR problems
- Heavy reliance on financing to fund operations → the business model may not work
- Large increases in accounts receivable without revenue growth → collection problems
- Owner distributions exceeding operating cash flow → bleeding the business dry
- No investing activities for 3+ years → underinvestment that will hurt long-term
Cash Flow Ratios Every Advisor Should Know
| Ratio | Formula | Healthy Range |
|---|---|---|
| Operating Cash Flow Ratio | Operating CF / Current Liabilities | > 1.0 |
| Cash Flow to Debt Ratio | Operating CF / Total Debt | > 0.20 |
| Free Cash Flow Margin | Free CF / Revenue | > 5% |
| Cash Flow Coverage | Operating CF / (Interest + Principal) | > 1.2 |
| Cash Conversion Ratio | Operating CF / Net Income | > 1.0 |
Advisory Gold: Most small business owners never look at their cash flow statement. When you sit down with a client and show them where their cash is actually going — revealing that their "profitable" business is hemorrhaging cash through AR, excessive distributions, or underpriced contracts — you become indispensable. This is advisory work at its finest.
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