A cash flow statement shows the cash that actually came into and left a company during a period, split into three parts: operating activities (the business itself), investing activities (mostly spending on equipment and acquisitions) and financing activities (borrowing, repaying debt, buybacks and dividends). It matters because profit and cash can differ widely. In 2025, Amazon.com (AMZN) reported net income of $77.7 billion and operating cash flow of $139.5 billion, but after $131.8 billion of capital spending its free cash flow was $7.7 billion [2]. Reading the statement in a few steps shows whether a company's earnings turn into cash and what that cash is used for.
What are the three sections of a cash flow statement?
Every cash flow statement ends with the change in cash over the period, broken down three ways:
- Operating activities: cash generated by selling products and services, after paying suppliers, employees and taxes. Most companies start from net income and adjust it (the "indirect method").
- Investing activities: purchases of property and equipment (capital expenditures, or capex), acquisitions, and purchases and sales of investments.
- Financing activities: issuing and repaying debt, buying back shares and paying dividends.
A healthy mature company usually has positive operating cash flow, negative investing cash flow (it is reinvesting) and negative financing cash flow (it is returning cash to shareholders or lenders). A young company often shows the reverse: negative operating cash flow funded by positive financing cash flow from new shares or loans.
How does net income become operating cash flow?
Under the indirect method, the statement starts from net income and makes three kinds of adjustments. Microsoft's (MSFT) fiscal 2026 statement, for the year ended June 30, 2026, shows each [1]:
| Microsoft, fiscal 2026 | Amount | Why it is adjusted |
|---|---|---|
| Net income | $133.7 billion | Starting point |
| Add: depreciation, amortization and other | +$38.5 billion | Expenses that use up past spending, not new cash |
| Add: stock-based compensation | +$12.4 billion | Paid in shares, not cash |
| Subtract: net gains on investments and derivatives | −$11.0 billion | Counted in profit but not received as cash |
| Other items and working capital changes (net) | +$9.3 billion | Receivables, payables, unearned revenue, deferred taxes and others |
| Net cash from operations | $182.9 billion |
Source: Microsoft Form 10-K, fiscal 2026 [1]. The "other" line is the difference between the items shown and the reported total, a DataPorium calculation.
Working capital
Working capital changes are where profit and cash part ways most often. If customers owe more at the end of the year (receivables rise), the company booked revenue it has not collected, which reduces operating cash flow. If the company owes suppliers more (payables rise) or customers pay in advance (unearned revenue rises), cash comes in before the expense or the revenue is recorded, which increases operating cash flow. Microsoft collects many software subscriptions annually in advance, so growing unearned revenue adds to its operating cash flow [1].
What is free cash flow, and why can it be so different from profit?
Free cash flow (FCF) is operating cash flow minus capital expenditures: the cash left after the company maintains and expands its assets, available for debt repayment, buybacks, dividends or acquisitions. It is the figure behind valuation measures such as free cash flow yield [6].
The gap between net income and free cash flow was unusually large for the biggest technology companies in 2025 and 2026, because they spent heavily on data centers for artificial intelligence:
| Company (period) | Net income | Operating cash flow | Capital expenditures | Free cash flow | Capex as % of operating cash flow |
|---|---|---|---|---|---|
| Amazon (2025) | $77.7B | $139.5B | $131.8B | $7.7B | 94% |
| Microsoft (fiscal 2026, to June 30, 2026) | $133.7B | $182.9B | $115.9B | $67.0B | 63% |
| Meta Platforms (2025) | $60.5B | $115.8B | $69.7B | $46.1B | 60% |
| Alphabet (2025) | $132.2B | $164.7B | $91.4B | $73.3B | 56% |
Source: DataPorium stock pages (income and cash flow statements) and Microsoft's fiscal 2026 10-K; percentages are DataPorium calculations [1][2][3][4][5].
Capex is not an expense when it is paid. It is recorded as an asset and expensed gradually through depreciation. So when spending rises fast, cash goes out years before the cost shows up in profit. Microsoft's capex rose from $64.6 billion in fiscal 2025 to $115.9 billion in fiscal 2026, while its depreciation and amortization charge rose from $29.4 billion to $38.5 billion [1]. Those new data centers will raise depreciation in coming years, which is why analysts watch capex as a lead indicator of future costs.
What do the investing and financing sections show?
The investing section shows the scale and type of reinvestment. Beyond capex, it records acquisitions and purchases or sales of securities, which can be large for cash-rich companies: Microsoft bought $58.4 billion of investments in fiscal 2026 [1].
The financing section shows who is funding whom. In 2025, Alphabet (GOOGL) repurchased $45.7 billion of its own shares while issuing $64.6 billion of debt; Meta Platforms (META) repurchased $26.2 billion of shares and issued $29.9 billion of debt [3][4]. Companies with strong cash flow borrowing to fund buybacks and data centers at the same time is a pattern worth noting: it means operating cash flow alone did not cover everything they chose to spend. Microsoft paid $26.4 billion in dividends and $22.3 billion in buybacks in fiscal 2026 [1].
Net income is an opinion shaped by accounting rules; cash flow shows what actually came in and went out.
What are the red flags in a cash flow statement?
- Operating cash flow persistently below net income. Profits that never turn into cash may come from aggressive revenue recognition or rising receivables.
- Gains inside net income. Investment gains raise profit but not operating cash; they are subtracted in the reconciliation. Amazon's 2025 net income included $15.3 billion of gains on securities, and Alphabet's $24.2 billion [2][3].
- Working capital that only helps. Stretching payments to suppliers can lift operating cash flow for a few quarters, but it reverses.
- Stock-based compensation added back. It is a non-cash expense but a real cost paid through dilution; Microsoft's was $12.4 billion in fiscal 2026 [1].
- Dividends or buybacks larger than free cash flow, funded by debt. That can last only as long as lenders are willing.
How to read a cash flow statement in five minutes
- Compare operating cash flow with net income for several years.
- Subtract capex to get free cash flow, and compare capex with depreciation: capex far above depreciation means the company is expanding.
- Scan the reconciliation lines for large gains, stock compensation and working capital swings.
- In financing, compare buybacks and dividends with free cash flow, and check debt issued and repaid.
- Check the change in cash and the year-end balance against the balance sheet.
The cash flow statement sits in Item 8 of the annual report; DataPorium's guide to the 10-K shows where to find it [7]. DataPorium's stock pages also show each company's cash flow statement by year and quarter, for example Amazon's [2].
Frequently asked questions
What is the difference between net income and cash flow?
Net income follows accounting rules that record revenue when earned and spread investment costs over time; cash flow records money when it moves. Microsoft's fiscal 2026 net income was $133.7 billion and its operating cash flow $182.9 billion [1].
How do you calculate free cash flow?
Operating cash flow minus capital expenditures. Meta's 2025 free cash flow was $115.8 billion minus $69.7 billion, or $46.1 billion [4].
Is negative free cash flow bad?
Not always. It can mean a company is investing heavily for growth, as Amazon did when capex took 94% of its 2025 operating cash flow [2]. It is a concern when it lasts for years and is funded by debt or new shares.
Which section of the cash flow statement is most important?
Operating cash flow, because it shows whether the business itself generates cash. Free cash flow, operating cash flow minus capex, shows what is left for shareholders and lenders [6].
Sources & References
- [1] Microsoft Corporation, Form 10-K for the fiscal year ended June 30, 2026
- [2] DataPorium Amazon.com (AMZN) stock page (income and cash flow statements)
- [3] DataPorium Alphabet (GOOGL) stock page (income and cash flow statements)
- [4] DataPorium Meta Platforms (META) stock page (income and cash flow statements)
- [5] DataPorium Microsoft (MSFT) stock page (income and cash flow statements)
- [6] DataPorium Articles, Free Cash Flow Yield: How to Screen
- [7] DataPorium Articles, How to Read a 10-K Annual Report
