Cash Flow Statement

CFO starts with Net Income and adjusts for non-cash items (D&A, stock-based comp, deferred taxes) and changes in working capital. An increase in accounts receivable reduces cash (you recognized revenue but didn't collect). An increase in accounts payable increases cash (you incurred expenses but haven't paid). CFO is the most important section because it shows how much cash the core business generates independent of investments or financing decisions.

CFI captures capital expenditures (CapEx), acquisitions, divestitures, and purchases/sales of investments. CapEx is almost always a cash outflow and is the largest item in this section for most companies. Acquisitions show up as a large negative in the quarter they close. For banks and analysts, CapEx is the key investing item because it is needed to calculate free cash flow (CFO minus CapEx).

CFF includes debt issuances and repayments, equity issuances and buybacks, and dividend payments. A company raising $500M in a bond offering would show a $500M positive in CFF. Share buybacks appear as a negative. In leveraged buyouts, the financing section is crucial — it shows how the new capital structure is funded and how debt is subsequently repaid over the hold period.

The ending cash balance on the cash flow statement must equal the cash line on the balance sheet. This is the 'check' that proves your three-statement model balances. If your model doesn't balance, the error is almost always in the cash flow statement — typically a missed working capital adjustment or an incorrectly linked debt schedule. Interviewers know this, which is why 'How does a $10 depreciation increase flow through the three statements?' remains the most popular IB interview question.