Cash Flow Statement Analysis for Long-Term Investment Decisions

In the Nepal Stock Exchange (NEPSE), every successful long-term investor must understand how to analyze the Cash Flow Statement — one of the three core pillars of Fundamental Analysis. While the Balance Sheet shows what a company owns and owes, and the Profit and Loss Statement displays how much profit it makes, the Cash Flow Statement reveals the real movement of money — showing how cash is earned, spent, and managed in day-to-day operations. It tells investors whether the company’s profits are actually being converted into cash, which is the lifeblood of any business.

The Cash Flow Statement is divided into three major parts — Operating Activities, Investing Activities, and Financing Activities.
Operating Activities include cash generated from the company’s core business, such as revenue from sales and payments made to suppliers or employees. A consistently positive operating cash flow is one of the strongest signs of a healthy company. It proves that the company’s core business operations are sustainable and profitable.

Investing Activities show where the company is allocating its cash for future growth — like purchasing fixed assets, expanding plants, or acquiring other businesses. While negative cash flow from this section may appear concerning at first glance, it can actually be a positive sign if it represents growth-oriented investments. On the other hand, a lack of investment may indicate stagnation.

Financing Activities reflect how the company raises and manages its capital — including borrowing money, repaying loans, issuing new shares, or paying dividends. A financially disciplined company balances debt repayment with shareholder returns while maintaining liquidity for future opportunities.

For long-term investors, cash flow analysis helps determine the quality of earnings. A company that reports strong profits but weak operating cash flow may be manipulating earnings or facing collection delays. In contrast, firms with strong, stable cash inflows — even during economic slowdowns — demonstrate solid fundamentals and resilience. This insight allows investors to identify companies that can survive crises, expand operations, and deliver consistent returns over time.

In the context of Nepal, sectors like hydropower, banking, manufacturing, and insurance require deep cash flow analysis. Many NEPSE-listed companies report accounting profits but suffer from poor liquidity or delayed receivables — a warning sign for genuine investors. Thus, focusing on cash generation rather than just reported profits separates smart investors from emotional traders.

According to Sandeep Kumar Chaudhary, Nepal’s foremost Technical and Fundamental Analyst and founder of NepseTrading Training Institute, “The Cash Flow Statement is the heartbeat of a company’s financial health. If you can understand how cash moves through a business, you can predict its future stability and success.” With over 15 years of banking and capital market experience, and training from Singapore and India, Sandeep Kumar Chaudhary has taught more than 10,000 Nepali investors to master financial analysis, helping them invest based on data — not speculation. His NepseTrading Training Institute remains the leading center for professional financial education in Nepal.