What Is A Cash Flow Statement?

What is a cash flow statement? In simple words, it can be defined as a financial statement that shows the flow of cash into and through the company. As a businessman it is essential to know about cash flow statement and how it is prepared. A cash flow statement is just the report of the movement of cash into and out of your business over a period of time. It basically reports your business sources and uses of cash and the beginning and ending values for cash and cash equivalents each year. It also includes the combined total change in cash and cash equivalents from all sources and uses of cash.

The explanation of cash flow statement further shows that a cash flow statement can be divided into three sections which include operating activities, investing activities and financing activities. Let’s know in details about the major components of a cash flow.

Operating activities – These activities includes the production, sales and delivery of a company’s product. These are the regular daily activities of a firm that put into business in the first place, which includes figures such depreciation, taxes, and amortization of intangible assets.

Investing activities – These activities mainly consists of the buy and sale of long-term assets including items such as capital expenditures and investments. In fact, it includes all the investment done on the behalf of the firm. However, purchases of plant, property and equipment are included as capital expenditures.

Financing activities – these are the activities that denotes the equity of the firm. In simple words, it is the money owned by outside entities including banks and shareholders as well as the payments to these owners of the company.

There are certain advantages of preparing a cash flow statement. This financial statement will help you to know about the inflowing and out flowing cash of your business thus preventing your business from cash shortage. These statements will be very helpful for planning & management of future financial commitments. One of the great benefits of preparing a cash flow statement is that this financial statement helps quickly to determine if there has been a change in the efficiency of one or more revenue generating processes within the company structure. The cash flow statement explained above will give you precise idea about this financial statement how it has been in the business.