Cash Flow Statement Glossary

Understanding where money actually comes from and goes

A cash flow statement tracks actual cash moving in and out of a business. It answers the question: where did our cash come from, where did it go, and how much do we have left?

This is different from the income statement (which shows profit) and the balance sheet (which shows what you own and owe at a moment in time). The cash flow statement shows actual money movement.

How to Use This Resource: This glossary defines the key terms you will encounter in the Silicon Valley Bank Cash Flow Analysis assignment. Keep it open as a reference while working through the case document and workbook.

The Core Concept: Profit Does Not Equal Cash

A company can be profitable (making money on paper) but still run out of cash (and go bankrupt). This is the single most important thing to understand.

Lopez Landscaping: Profitable But No Cash
January: Completes $50,000 landscaping job for a corporate office park
• Contract says payment in 90 days (due April)
• Income statement: $50K revenue, $30K expenses = $20K profit
• Cash flow: $0 received (customer hasn’t paid yet)
• Must pay workers $30K now (in January)
Result: Profitable on paper, but running out of cash to pay bills.
CloudTask Software: Unprofitable But Has Cash
This month: Spending $100K on developers but only earning $60K in subscription revenue
• Income statement: Revenue $60K, expenses $100K = $40K loss
• But: Just collected $500K in annual subscriptions paid upfront by customers
• Cash flow: $500K cash inflow from subscriptions
Result: Losing money on paper, but has plenty of cash to operate.
Warren Buffett: “Cash is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.”

The lesson: Profit (income statement) tells you if the business model works. Cash flow tells you if the business will survive tomorrow. You need both. Silicon Valley Bank was profitable in 2022 but ran out of cash in 2023.

Try asking your LLM
Give me another example of a business that could be profitable but run out of cash. Use a specific type of business (like a construction company or a retail store) and walk me through the numbers. Make it really clear why profit and cash are different things.

The Three Types of Cash Flow

Every dollar that comes in or goes out fits into one of three categories. The cash flow statement organizes money by why it moved, not just that it moved.

Operating Activities: Running the Business

Cash from doing what the company actually does: selling products, collecting payments, paying suppliers, paying employees. This should usually be positive for a healthy company.

Operating Cash Flow
Cash generated from the core business operations. If you run a restaurant, this is cash collected from customers minus cash paid to suppliers and staff. Positive means the business generates cash; negative means it burns cash.
A coffee shop that collects $500K from customers, pays $200K to suppliers, and $150K to employees has operating cash flow of $150K
Why Operating Cash Does Not Equal Net Income
Net income (from the income statement) includes revenue you haven’t collected yet, and expenses that don’t require cash (like depreciation on equipment you bought years ago). Operating cash flow adjusts for these to show actual cash from operations.
The cash flow statement starts with net income, then adds back non-cash expenses (like depreciation, which does not require an actual cash payment), and subtracts revenue you haven’t collected yet (like sales on credit where customers haven’t paid). This gives you actual cash from operations.
Try asking your LLM
Explain depreciation and why it gets “added back” on the cash flow statement. Use a simple example like a food truck that buys equipment. I don’t understand why something called an “expense” doesn’t use cash. Keep it simple, I’m new to accounting.

Investing Activities: Buying and Selling Long-Term Items

Cash spent on things the company will use for years (equipment, buildings, securities) or received from selling them. Usually negative for growing companies because they are investing in the future.

Investing Cash Flow
Cash used to buy equipment, buildings, or securities (bonds, stocks). Also cash received from selling these things. Usually negative because companies invest for growth.
A bakery that spends $200K on new ovens and delivery trucks has investing cash flow of negative $200K
Capital Expenditures (CapEx)
Money spent buying long-term assets like equipment or buildings. This is the biggest part of investing activities for most companies. Sometimes called “capital spending.”
A restaurant chain opening 10 new locations spending $500K each = $5M in capital expenditures
When Positive Is a Warning
Negative investing cash flow is normal (companies invest in growth). But if investing is positive, the company is selling more assets than it is buying, often a sign they need cash urgently.
If a struggling retailer sells old buildings for $20M cash, that is positive investing cash flow. But it is not sustainable. You can only sell assets once, and you might need those buildings to operate.

Financing Activities: Borrowing and Paying Back Money

Cash from people or institutions that fund the company: borrowing from banks, issuing stock to investors, or paying money back through debt repayment and dividends.

Financing Cash Flow
Cash from raising money (borrowing or selling stock) or paying it back (repaying loans, paying dividends to shareholders). Positive means getting money; negative means paying it back.
A company takes out a $10M bank loan (positive $10M), then repays $3M of an old loan (negative $3M). Net financing cash flow is positive $7M.
Debt Issuance vs. Repayment
Issuance (borrowing) brings cash in (positive). Repayment (paying back) sends cash out (negative). The net tells you if the company is taking on more debt or paying it down.
If a business borrows $50K from a bank this year, financing shows positive $50K. When they pay back $5K next year, financing shows negative $5K.

How Banks Make Money

The Banking Business Model

When you deposit money in a bank, you are actually lending money to the bank. The bank owes you that money back (which is why deposits appear as liabilities on a bank’s balance sheet).

In exchange for borrowing your money, the bank pays you interest, but it is tiny, maybe 0.5% or even 0% for checking accounts.

The bank then takes your money and uses it to make more money:

You deposit: $10,000 in a checking account at 0% interest
You earn: $0 per year
Bank lends your $10,000: To someone buying a car at 6% interest
Bank earns: $600 per year
Bank’s profit: $600 − $0 = $600 per year from your deposit

The bank can do this because they know not everyone will withdraw at once. If 1,000 people each deposit $10,000 ($10 million total), maybe only $1–2 million gets withdrawn on any given day. The bank can safely lend out $8–9 million long-term while keeping $1–2 million in cash for daily withdrawals.

Banks make money on the spread: They pay you 0–0.5% on deposits, lend at 4–8% on loans, and keep the difference. The bigger the spread and the more deposits they have, the more money they make.

The critical assumption: As long as the bank can pay back anyone who wants to withdraw, they are safe to lend out most of the deposits. But if too many people try to withdraw at once (a “bank run”), the bank does not have enough cash on hand. They have lent it out or invested it. If they cannot convert those investments back to cash fast enough, the bank fails.

Why Banks Look Different on the Cash Flow Statement

For Banks: Deposits Equal Financing Activities

This is confusing at first, so let’s be clear about why deposits show up where they do:

Regular Company:
• Borrows $10M from a bank → Financing cash flow +$10M
• Repays $3M of the loan → Financing cash flow −$3M
Bank:
• Receives $10M in customer deposits → Financing cash flow +$10M
• Customers withdraw $3M → Financing cash flow −$3M

Why deposits are “financing” for banks: Because deposits are money the bank borrows from customers. Regular companies borrow from banks. Banks borrow from depositors. Both show up in the financing section.

What this means for reading bank cash flows: When you see negative financing cash flow for a bank, that means deposits are leaving. Money is flowing out. If this continues, the bank will run out of cash, just like any company would if its funding source dried up.

In the SVB case, you will see quarterly financing cash flow data. Watch for when deposits start leaving (financing turns negative). That is when you know the bank is in trouble.

Try asking your LLM
I’m reading a bank’s cash flow statement and I see the financing section shows negative $5 billion. Explain what this means. Where is that cash going? Why would this be dangerous for a bank? Keep it simple and concrete.

Essential Terms

Net Change in Cash
The sum of all three activities. Shows whether the company ended with more or less cash than it started with. This is the bottom line of the cash flow statement.
Net Change = Operating + Investing + Financing
Operating $5M, Investing (−$3M), Financing (−$1M) = Net change $1M (cash went up)
Cash at End of Period
The cash flow statement starts with cash at the beginning of the period, adds the net change, and shows cash at the end. This final number should match “cash and cash equivalents” on the balance sheet.
Started with $10M, net change was negative $2M, ended with $8M
Free Cash Flow
Cash from operations minus money spent on essential equipment and buildings (capital expenditures). Shows how much cash is truly “free” for other uses.
Free Cash Flow = Operating Cash Flow − CapEx
Company generates $10M from operations, spends $3M on equipment. Free cash flow is $7M.
Quarterly Trends
Cash flows change quarter by quarter. Looking at multiple quarters in sequence reveals trends that annual numbers hide. A company might have positive cash flow for the full year, but if it is deteriorating quarter by quarter, there is a crisis building.
Annual: $2M positive (looks fine). Quarterly: Q1 +$8M, Q2 +$1M, Q3 −$3M, Q4 −$4M. By year-end the company is burning cash fast. The annual number hides this.
Optional Advanced Topic

Duration Mismatch and Why SVB Failed

Read this if: You are interested in understanding the deeper technical reason SVB collapsed, or you are considering finance/banking as a career path. Skip this if: You just want to understand basic cash flow concepts. Everything above is sufficient for the case.

The setup: Banks make money by borrowing short-term (deposits you can withdraw anytime) and lending long-term (30-year mortgages, 10-year bonds). This is profitable but risky.

First: What Are Bonds and Why Do Banks Buy Them?
A bond is an IOU. When you buy a $1,000 bond from the U.S. government paying 3% interest, the government promises to pay you $30/year for 10 years, then return your $1,000.
Why banks buy them: Bonds are safer than making loans to businesses (the U.S. government will not default). Banks park deposits in bonds to earn steady, safe interest. SVB had $91 billion in bonds.
What “Held-to-Maturity” (HTM) Means
Bonds can be classified two ways for accounting:
Available-for-Sale (AFS): You can sell them anytime. If the value drops, you report the loss on your balance sheet (but not income statement yet).
Held-to-Maturity (HTM): You promise to hold them until they mature. You do not report value changes at all. They stay on your balance sheet at original cost.
The trap: HTM bonds cannot easily be sold. If you sell them, you have to reclassify your entire HTM portfolio and report all losses immediately.

SVB’s mistake: In 2020–2021, when interest rates were near 0%, SVB bought $91 billion in bonds paying 1.5–2.5% interest. They classified 77% as HTM (“we will hold these until maturity, no need to report value changes”).

Then in 2022, the Federal Reserve raised interest rates from 0% to 4.5%.

Why rising rates hurt bonds: Imagine you own a $1,000 bond paying 2% ($20/year). New bonds now pay 4% ($40/year). Your bond is worth much less, maybe only $600, because investors would rather buy new bonds paying 4% than your bond paying 2%. If you hold to maturity, you will get your $1,000 back eventually. But if you need to sell now, you lose $400.

SVB’s $91B in bonds lost about $15 billion in value. Because they were HTM, this loss did not show up on the income statement (SVB still looked “profitable”). But if they sold the bonds, they would realize the $15B loss immediately.

The duration mismatch crisis: In 2022, depositors started withdrawing money (you will see this in quarterly cash flow data). SVB needed cash to pay depositors. But their bonds were:

1. Locked up (HTM classification made them hard to sell)
2. Underwater ($15B loss if sold)
3. Long-term (5–10 years to maturity, cannot get cash back quickly)

Meanwhile, deposits could flee instantly. When $16B in deposits left in 2022 (and $42B more tried to leave in March 2023), SVB could not convert their long-term bonds to cash fast enough without taking catastrophic losses.

This is duration mismatch: Funding long-term assets (bonds with 10-year maturities) with short-term liabilities (deposits that can leave today). When interest rates change and deposits flee simultaneously, banks with this mismatch are trapped.

The lesson: Banks must either (a) match the duration of assets and liabilities, or (b) have enough capital to absorb losses from selling assets at bad times, or (c) keep enough liquid assets (cash, short-term securities) to handle deposit outflows. SVB did none of these. They optimized for short-term profit and died when conditions changed.

The cash flow statement told the story: deposits fleeing (negative financing), emergency asset sales (positive investing in Q4), cash bleeding out. By Q4 2022, the writing was on the wall. Most analysts did not see it until March 2023 when SVB collapsed in 48 hours.