Now let's move to the statement of cash flow. Let's start by doing something very simple. Let's just look at the signs of cash flow from operating activities, cash flow from investing activities and cash flow from financing activities, and total cash flow. The signs themselves whether positive or negative can tell us volumes of information about what's happening at the company. In the first year, total cash flow is positive. However look at cash flow from Operating Activities. It is negative. Our initial reaction might be one of concern that the company did not generate cash from this operations. However, remember this is a startup so we might be a little bit more patient. Notice in the second year, cash flow from Operating Activities has turned positive. Now let's look at cash flow from Investing Activities. That is negative in both years. And cash flow from Financing Activities is positive in both years. Now what would we expect? We would like to see a positive cash flow from operating activities. We would hope that a company can generate a positive cash flow from its day to day operations. But it might take some time for a startup to begin generating positive cash flow from operations. What about cash flow from investing activities? Well, we might expect that to be negative as the company invests to grow the business. Cash flow from financing activities. That could be negative or positive depending on the company. You might expect it to be a relatively larger positive number early in a company's life cycle as it is trying to finance the initial startup of its business before it gets to the point that it can generate cash from operations. Now this is a pretty typical sign pattern for a startup company. Negative cash flow for Operating Activities. It's tough to start a business, generate cash from operations right away. Negative cash flow from Investing Activities as the company invests heavily in the initial startup of operations. And a positive cash flow from Financing Activities as a company must go somewhere to get the funds to invest in the assets that it's investing in. Notice in the second year we're seeing a similar sign pattern, except for the cash flow for Operating Activities has turned positive. Now let's look into more detail in each section. Let's go to the Operating Activities section. The main change from Year 1 to Year 2 is in net income. A very large increase in net income. We just talked about that when we were looking at the income statement. The company was able to generate a lot more revenues on the same base of operating cost. The increase in profitability was a big boost to cash flow. We also see that the increases in accounts receivable and inventory were not as high in Year 2 as in Year 1. They're still increasing, but recall though that the company's revenues grew 25%, and with increasing revenues, we would expect the companies accounts receivables and inventory to increase. Now let's go to the Investing Activities section. The company has been investing heavily, particularly in Year 2 with the purchase of the land. And the Financing Activities section in Year 1 most of the company's funds came from issuing stock. In Year 2 though, it relied less heavily on equity, or issuing stock, and obtained more funds from loans. The financing patterns have changed a bit from Year 1 to Year 2. Here's my recommended process when looking at the statement of cash flows. Start with the signs of total cash flow, cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. The signs can tell a story in and of themselves. Then, dig deeper into each section to find out more detail about the cash coming from operations, what a company is investing in, how they're financing that investment and whether these things are changing over time.