Reading the financial statements
The cash-flow statement
4 min
Profit is an opinion; cash is a fact. The cash-flow statement (demonstração dos fluxos de caixa, DFC) strips out accounting estimates and shows the real money that entered and left during the period, in three buckets.
The three sections
- Operating activities (atividades operacionais) — cash generated by running the business: collecting from customers, paying suppliers and staff. This is the engine.
- Investing activities (atividades de investimento) — buying or selling long-term assets. Heavy spending on plant and equipment, called capex (capital expenditure), shows up here as a cash outflow.
- Financing activities (atividades de financiamento) — raising or repaying debt, issuing shares, paying dividends.
Why it catches what the DRE hides
A company can report a healthy net income while bleeding cash — for example, by booking sales that customers have not paid yet (rising receivables). The cash-flow statement exposes that gap immediately.
Free cash flow — the number that drives valuation
The most important figure you build from this statement is free cash flow (FCF): the cash left after the company has paid to maintain and grow its asset base.
Operating cash flow 320
- Capex (investimento) - 120
= Free cash flow (FCF) 200
That 200 is cash the company could pay out to owners, use to cut debt, or reinvest. It is the raw material of the discounted-cash-flow model you will meet in chapter 3. A profit that never turns into free cash flow is a warning sign.
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