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    You are at:Home»General»Using a Cash Flow Statement
    using-cash-flow-statement
    A cash flow statement can be used to predict future cash flow, which helps with matters in budgeting. This financial document is distributed along with the income statement and balance sheet.

    Using a Cash Flow Statement

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    By admin on January 5, 2016 General

    A cash flow statement can be used to predict future cash flow, which helps with matters in budgeting. This financial document is distributed along with the income statement and balance sheet. A summary of a company’s inflow and outflow of cash, the cash flow statement is one of the three financial statements commonly used to gauge a company’s performance and overall health.

    As a business owner, you’ll want to make sure that your financial statements are in order.  While all these documents are important, the importance of the cash flow statement shouldn’t be underestimated.

    Regarded as the best resource for testing a company’s liquidity, potential investors often rely on this document to gauge how well a company is doing.

    A cash flow statement is comprised of three main sections, namely:

    Operating Activities – this represents the key source of an organisation’s cash generation. It is considered the most important information on a cash flow statement.

    Investing Activities – This section records changes in equipment, assets or investments.  A well-performing company has investments in plant, equipment, land and other fixed assets.

    Financing Activities– This represents changes in debt, loans, stock options and long-term borrowings etc. It shows how borrowing affects cash flow.

    When using a cash flow statement, an important number to consider is Free Cash Flow, which equals Net Cash from operating Activities less Capital Expenditures.

    A company in good shape is one that is bringing in more than what it’s spending. The most important thing to consider however, is the company’s cash flow trend.

    Cash provided by operating activities should be consistently greater that net income over a period of time.

    A positive cash flow from operations is a good sign of a healthy company. As a potential investor, it’s important to look for consistency here. This indicates the ability of a company to fund its operations.

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