The Essentials of a Basic Cash Flow Statement

A cash flow statement is an important financial statement of a business or organization that helps in tracking the working capital that flows in and out of the entity.

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While the balance sheet is also an important financial statement, it doesn’t cover the flow of capital in detail. This is where a cash flow statement fills the gap.

Ideally, a company should analyze its cash flow statement every month or every quarter, as it covers the following essential aspects:

Cash Balance

This is the cash available to the company at the start of the chosen period and can be obtained from the balance sheet.

Three main factors are considered when creating the cash flow statement with regard to the flow of funds-

Investments

These include the investments in securities or assets that don’t directly affect the business operations. So, the following are not covered in this: loan repayments, inventory, equipment, etc.

Operations

Business operations are what that bring the money in. However, there are certain costs related to them as well.

The following are the main operational activities that should be taken into account for the cash balance-

• Cash collection from the sale of products/services, and the cash outflow in the form of payments to the vendors and employees’ salaries.
• Account receivables, i.e. the amount owed by the customers.
• Depreciation of assets.

Finance

Financing activities cover issuing of equity, debt repayments, as well as debt collection, etc.

Cash Flow Predictions

Cash flow statements can be quite useful in realizing that a company’s financial health at any particular moment may not be aptly assessed by its value at that movement. For instance, a company could have a high market value due to the value of its assets. However, its cash flow statement may show that its cash inflows are unpredictable and thus point to dicey future operations.