How to Read a Cash Flow Statement: Understanding a Company's Phase Through the "+/-" of Operating, Investing, and Financing Activities [Easy Financial Statements Part 4: Application]

The financial statements showed a profit.
Yet, there wasn't enough cash to cover that month's payments.

This happened back when I was in charge of managing the cash flow for an overseas subsidiary at my company.
On the books, we were clearly profitable. But there was no money.
I still remember the cold sweat I felt back then.

This article is aimed at those who are starting to take an interest in side businesses, small ventures, or company numbers.
"I opened the financial statements, but I didn't know where to look, so I quietly closed them."
——For those who have had that experience.

In the introductory part (Part 4), we looked at "What is a Cash Flow (C/F) Statement?"
Today, we will take a step further and learn how to read a company's "current state" using only three signs.
Once you get used to it, you will be able to see a company's status in 30 seconds.

🟩 POINT | Can you be profitable but still run out of cash?

Have you ever heard the term "bankruptcy while in the black"?
There are actual cases where a company goes bankrupt because it doesn't have cash on hand, even though it is showing a profit.

The key to solving this mystery is the "Cash Flow (C/F) Statement."
In this article, I will explain this C/F in an easy-to-understand way 😊

🟩 C/F divides cash flow into "three boxes"

C/F divides cash inflows and outflows into three categories.

・Operating CF = Cash earned/used in core business
・Investing CF = Cash used to buy (or sold) equipment and assets
・Financing CF = Cash borrowed/repaid/paid as dividends

And this is the main point for today.

Whether each of these three boxes is positive or negative. You can read quite a lot just from those "signs."

On the C/F page of the financial statements, look at the total at the bottom of each section.
Just pick up the plus or minus for those three. No difficult calculations are needed.

🟩 Signs can be read as a company's "expression of intent"

This is the part I find most interesting.

The three signs are not just calculation results.
They directly show "what the company has chosen."

・If Operating CF is + → The core business is successfully generating cash
・If Investing CF is - → The company is in a position of using money for the future
・If Financing CF is - → The company has the leeway to repay debt or pay dividends

In other words, reading the signs meansreading the company's "current strategy."

🟩 First, the three basic patterns

These are the three representative patterns.

For example, a company with a continuous "---" pattern is like a household living by dipping into its savings.
Even if it doesn't collapse immediately, you can tell just from the signs that it's a situation that cannot be ignored.

🟩 One step further: You can also read these patterns

Once you get used to it, you will start to see patterns like this.

Operating + / Investing - / Financing +
Earning from core business, investing, and furthermore, aggressively bringing in external funds.
This is a bullish expansion phase. It is a sign of a make-or-break moment where success leads to significant growth, but failure leads to hardship.

Read the combination of signs as the "company's strategy."
Once you reach this point, financial statements become much more interesting.

🟩 You can use the same perspective for side hustles

This isn't just about big companies.

In your side hustle, money also moves through "core business (selling and earning) / investing (purchasing and tools) / financing (borrowing and personal funds)."

・Are you selling and earning properly? (Operating)
・Are you spending for the future? (Investing)
・Are you relying too much on borrowing? (Financing)

Even if the scale is small, the way you look at it is exactly the same.
Are you seeing "all minus = dipping into savings"?
Just by being aware of that, you can notice dangerous signs early.

In conclusion

This is what I want to convey most today.

You don't have to read the "entire" financial statement. If you first look at just the three signs, you can grasp the company's health.

Like me back then, feeling reassured by black-ink figures while overlooking the cash shortage right under my feet.
That wasn't about grit or luck; I just didn't know "where to look."

Operating, Investing, Financing. Three pluses and minuses.
Look only there. If you can take just that home with you today, that is enough.

What kind of pattern do you think the three signs for the company (or your own business) you are interested in would show?
I would be happy if you could let me know in the comments.

To the next article

Once you can read the flow of cash, next let's look at what comes before that—the "profit" itself.

"There are sales, but for some reason, no profit remains."
We will easily trace where that profit disappears using the income statement (to Part 5).

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