1. This lesson examines the statement of cash flows, which explains the changes in a bank’s cash and cash equivalents during a period.

4.1 Purpose and Structure
The statement of cash flows reconciles the opening and closing cash balance, reporting cash flows from three activities:

• Operating Activities: Cash flows from the principal revenue-producing activities, such as interest receipts and payments, and fee income.

• Investing Activities: Cash flows from the acquisition and disposal of long-term assets, such as investment securities and property.

• Financing Activities: Cash flows from transactions with shareholders and creditors, such as issuing shares, borrowing, and repaying debt .

4.2 Importance in Bank Analysis
The cash flow statement provides critical insight into a bank’s ability to generate cash, its liquidity position, and its reliance on external funding. Cash flows from operating activities are often considered a more reliable indicator of financial health than net income . The cash flow statement is a key component of financial analysis and is essential for interpreting a bank’s financial position.

4.3 The Cash Flow Statement in Banking
In banking, the cash flow statement is often less prominent than the balance sheet and income statement, but it remains a vital tool for understanding a bank’s financial health and risk profile. The ability to analyse cash flow statements is a key skill for banking professionals .