Cash Flow Statement

A Cash Flow Statement is a tool used to track a company’s financial health by recording and organizing its cash transactions. This includes all income and expenses from operating, investing, and financing activities.

The Cash Flow Statement is an important tool for a business to use when tracking its cash position. It allows a company to monitor the flow of money in and out so that they can better plan to meet their financial obligations. It is particularly helpful in helping to project future cash positions and ensure that the company has enough money available to pay its bills and obligations.

The Cash Flow Statement is divided into three sections: operating activities, investing activities, and financing activities. Operating activities are the transactions related to the production and sale of a company’s goods and services, and include cash received from customers and cash payments for supplies, labor, and other expenses related to these activities. Investing activities are related to purchases or sales of long term assets, such as equipment, land, or investments in other businesses, and include the purchase or sale of any of these items. Lastly, Financing activities are related to borrowing money or issuing shares of stock, and include any transactions related to these activities.

One of the key uses of the Cash Flow Statement is to determine a company’s net cash flow. This is calculated by taking the total of the three sections and subtracting the total of the cash payments. The net cash flow shows the net total of all cash transactions in the period. This information is helpful in evaluating a company’s ability to generate cash and whether it is able to finance future activities or whether it needs to borrow money or seek other means of financing.

For example, a company may have a total of $500,000 in cash inflow from operating activities, $200,000 in cash outflow from investing activities, and $100,000 in cash outflow from financing activities. When calculating the net cash flow, the company would subtract the total of the cash outflow ($300,000) from the total of the cash inflow ($500,000) to get a net cash flow of $200,000. This shows that the company is able to generate a net cash flow of $200,000 in this period, which can be used to finance future activities or investments.