Final answer:
Summing cash from operating, investing, and financing activities results in the net change in cash, which is a key component of the cash flow statement. It indicates whether a company has a positive cash flow, a negative cash flow, or cash neutrality.
Step-by-step explanation:
The net effect of taking the total cash provided or used by operating activities, adding it to the cash provided or used by investing activities, and adding that to the cash provided or used by financing activities is essentially calculating the company's net change in cash for a specific period. This calculation is depicted on a company's cash flow statement, which is one of the three main financial statements used in accounting and finance to assess a company's financial health. The result of this calculation can either be a positive cash flow, a negative cash flow, or cash neutrality, depending on the net totals of each activity.
If the sum is positive, it means more cash has flowed into the company than out, which typically indicates good financial health. Conversely, a negative sum indicates that more cash has flowed out of the company, signaling potential financial challenges. Cash neutrality would occur if the inflows and outflows were exactly equal, meaning no net change in the company's cash balance.