The statement of cash flows is divided into three key categories, operating, financing, and investing, to provide transparent information about what areas of the business generated and used cash.

Operating activities in a cash flow statement reflect the cash inflows and outflows tied to a company's core operations. For example, in a retail business, the main cash inflow would come from selling goods, demonstrating the business's ability to attract and retain customers. On the outflow side, the company would incur expenses such as supplier payments for inventory, employee wages, and rent.

Additionally, non-cash adjustments, like depreciation and changes in inventory, are accounted for in the operating section. An increase in inventory suggests cash is tied up in stock, reducing liquidity and negatively affecting net cash flow.

A positive net cash flow from operating activities indicates the company effectively converts its business operations into cash, which is critical for sustaining and growing the business. Conversely, a negative cash flow may signal operational issues. Ultimately, operating activities reveal whether the company can maintain and expand its core operations without depending on external financing.