The statement of cash flows could always be just a list of various cash flow items all randomly one after each other. However, it wouldn’t be of much use that way. Hence, as a business in involved in 3 types of activities – operating its business, investing into assets and financing its activities –, those are the groups also the cash flows are presented for.

Now to give a little bit more insight to those 3 groups let’s start with operating cash flows. Those are the cash flows generated through normal course of business – selling, buying and producing. What sometimes is also included within this group, are the interest paid. It’s simply because financing is usually received for keeping or supporting main operations so it’s more suitable to have them as a part of operating activities. However, note that the financing itself, i.e. loans, are never part of operating.

The second group and to follow business cycle logically, is investing. A company generates cash mainly to invest it further either into assets like machinery, buildings etc. or financial instruments like loans, bonds, derivatives and so on. Funding the founding and purchasing of subsidiaries and associates are also classified under investing activities.

The third group is called financing activities. Cash flows classified in here relate mostly to financing business operations – overdrafts, loans received, finance leases, equity payments (both in and out). All this funding received gives an extra boost to either investing, which supports operations or directly contributes (i.e. overdraft) activities like paying to suppliers, employers etc.

Having cash flows divided into three groups like mentioned, gives an overview of each of these activities and how efficiently the company is running its main activities, how has the company prioritized it’s investing transactions and whether any and if, then how well, the company is using financing.