What is the Cash Flow Statement? Doing Cash Flow analysis is an important tool, so that one can have better planning, control, and execution of how to control their company balance. Which is fundamental for the continuity of their business future cash flows. The Cash flow statement from financing (cash inflows or cash outflows) are either accounts receivable. The positive cash flow (ie cash inflows and so represented as a positive cash flow number) or payments (i-e cash outflows and so represented as a negative cash flow number in financial statements).

The estimate or calculation of sales and obligations of the company is based on the company’s financial statements management. When money will be flowing into(cash inflows) and out(cash outflows) of the business. It enables the management team to business plan for controlling the cash position amounts that enter (That is, all payments inflows and outflows from customers, sales and others). But also, having control of all the values that come out (among them, payment of employees, purchase of materials, replenishment of stock, and several others). The operating cash inflows and outflows are related to the company’s income Statement (Income Statement for the Year).

Objective Of The Cash Flow Statement

The main objective is to provide a clear and understandable view of the company’s income statement /cash management (inflows and outflows), so that they can evaluate their cash generation capacity, providing conditions for them to plan, control and manage the company’s financial resources, avoiding solvency and generating sustainable liquidity in the cash position of inflows and outflows.

This is the origin of the money that circulates through the company, and there may also be an application with excess cash in a certain period, obtaining the result of the positive cash flow or financial flow for organization and use of the cash flow analysis tool in conjunction with others. Cash flow analysis can made daily, weekly, monthly, quarterly or annually, as a result of the company’s needs.

Component Of The Cash Flow Statement

The cash flow statement divided into the following three activities.
Operational activities
Cash Flow from investing activities|
Cash flow from financing activities

Operational Activities

Operating cash flow or operating activities constitute the main source of ordinary income of the company; therefore, its origin would found in the items of income and expenses that make up the company’s income statement. Operating cash flow activities are those which produce either revenue or are the direct cost of producing a product or service through the company’s daily operations. The cash inflow or outflow of cash referring to activities like employee payments, accounts receivable, supplier payments and income taxes.

Cash Flow From Investing Activities (Investing)

Investing and financing activities are those that primarily aim at buying or selling non-current assets or long term assets which will used to generate revenues over a long period; or buying and selling securities not classified as cash equivalents. Here, it is possible to identify the use of cash position for activities aimed at both maintaining the company’s business and generating new business in the future cash flows. More specifically, acquisitions of non-current long term assets (such as real estate). Other businesses, financial cash flow from investing activities, among others, are included in investment activities for future cash flows.

Cash Flow From Financing Activities

Cash flow statement from financing activity are formed by the liquid means obtained and applied in cash flow from operations with shareholders or with non-commercial creditors, both in the short and long term assets. Consequently, its origin is in the Liabilities and in the Net Equity of the cash balance. This section includes cash flows (inflows or outflow of cash) related to the company’s financing activities, such as loans, payment of earnings, issue of shares, loans, among others.

Elaboration Methods

There are two ways or methods for presenting operating cash flow activities in the statement of cash flows (inflows or outflow of cash):

Direct Method Of the Cash Flow Statement

It consists of presenting the main components of gross operating inflows the cash and expenses. Such as cash received from customers or paid to suppliers and personnel, the result of which constitutes the net cash flow from operating activities. Those companies that use the direct method must provide information with related movements on:

  • Cash collection from clients.
  • Cash received for interest, dividends and investment income.
  • Collections derived from the cash flow from operations
  • Cash payments to personnel and suppliers.
  • Amount payments for bank interest.
  • Cash payments for taxes.

When calculating the cash flow from operating activities using the direct method. All types of cash transactions are included, including payment, receipts, expenses, income taxes, and interest.
To calculate it, the difference between the mentioned factors must be established as follows:
Cash flow = receipts – payment – expenses – interest – taxes (in cash).

Indirect Method Of the Cash Flow Statement

Another way in which cash flow from operating activities can be calculated is through a calculation based on the indirect method. It consists of determining the net cash flow from operating activities based on the net result for the period. For this, the amounts of income and expenses that do not represent cash flow from operations, such as the depreciation of fixed current assets, provisions, etc.

As well as the net changes in current assets, will deducted or added to the said result, respectively. They do not constitute cash (customers, suppliers, stocks, etc.). This method may be somewhat more abstract, since it determines the cash inflows from operating activities indirectly, making adjustments.

Here the utility taken as a starting point.

  • Depreciation and amortization
  • Differences due to currency fluctuations.
  • Profit and loss on sales of property, equipment or other operating assets.
  • Changes in the company’s operations accounts such as the accounting period of receivable amount, inventories, accounting period of accounts payable, liabilities, etc.
  • Provisions for asset protection.
  • Profit or losses on the sale of the property, plant, and equipment, investments or other operational assets.
  • Monetary correction for the period of the balance sheet accounting period.
  • Change in operational items, such as increase or decrease in accounts receivable, inventories, accounts payable, estimated liabilities and provisions. This technique for performing cash flow can be more complex since it includes accounts. That do not represent tangible cash inflows and outflows such as depreciation. To propose this calculation using the indirect method, net income must taken into account and adjusted according to changes in the balance sheet.

The following formula used:

Cash flow = net income + investment and the company’s financial statements of company profit and loss + non-monetary charges + changes in operating accounts.

Cash flow must always compare to the company’s net income. If the cash flow from operating activities exceeds the net income, constantly, it can be safely assumed that the company’s earnings are of high quality. If the opposite happens, the company would be in a very unstable situation.

Format Of The Direct Method

Operating activities

The cash receive customers

Amount paid for merchandise

The Cash paid to employees

Cash paid for interest

Paid for income taxes

Cash Provided By Operating Activities

Investing activities

Purchase of property and equipment

Net Cash Used In Investing And Financing Activities

Financing activities

Proceeds from line of credit

The Payments online of credit

Proceeds from long-term debt /loans

Payments on long-term debt

Net Cash Provided (Used) In Financing Activities

Net Increase (Decrease) In Cash

Beginning cash balance

Ending cash balance


The indirect method uses information from financial statements such as the Income Statement (Income Statement for the Year) and BP (Balance Sheet) to analyze the variation in economic performance according to the cash regime. You may asked for the statement of cash flows. The following is a pro forma showing the indirect method of the cash flow statement.

Operating activities

Profit before tax X

Investment income (X)

Financing cost X

Depreciation X

Less capital expenditures government grant released (X)

Amortization of intangible assets X

Impairment loss charged in profit and loss X

Loss on disposal of assets (profit) X/(X)

Increase in provisions (decrease) X/(X)

Changes in working capital expenditures

Increase / decrease in inventory X/(X)

Increase / decrease in receivables and prepayments X/(X)

Increase/decrease in trade accounts payable and accruals X/(X)

Cash generated from the company’s operations X

Interest paid (X)

Taxation paid (X)

Net cash from operating activities X

Investing and financing activities

Payments to buy PPE / Intangibles / Investments (X)

Proceeds from the sale of PPE / Intangibles / Investments X

Dividends received from investments X

Capital expenditures government grants received X

Net cash used in investing activities X

Financing activities

Proceeds from an equity share issue X

Dividends paid (X)

Proceeds from the issue of new debt X

Repayment of debt (X)

Capital repayment of financing lease obligations (X)

Net cash from/used in financing activities X/(X)

Change in cash and cash equivalents X/(X)

Opening cash and cash equivalents X/(X)

Closing cash and cash equivalents X/(X)

Cash and cash equivalents comprise cash on hand and demand deposits with short-term investments made by the company and that is convertible to a known amount of cash, and are subject to a deficient risk of changes in value (negative cash flow). The overdraft should be treated as a negative cash flow balance in cash and cash equivalents.


So, it is a document or company’s financial statements report that shows the operating cash inflows or outflows of cash flow projections that a company has had (or will have in the case of a cash flow projections from financing activity) in a given period.

Financial statements are the calculation of the money that enters or leaves the company; for example, it shows the payment (money disbursement) that is made for a purchase, regardless of when it is made.


Does cash flow include salaries?

The cash flow statement contains all the income and expenses of the company for the period. The cash flow shows how much money the company received and how much it paid, how much it had, and how much was left. Every operation is entered into it – income or expense, it is noted to whom they paid and where they got the money from? They divide the movement of funds into categories. Even in a small business ideas, operations can cost hundreds. And each of these operations can radically change the position of the business and all these operations include in the cash flow. In which the salaries of the worker also involved.

Mostly small businesses owner is not trying to maximize net profit. The owner is trying to only take out as much as possible in tax-deductible salary and benefits. The paying salaries is an operating activity because The operating activities include cash receipts from goods sold, payments to employees, taxes, and payments to suppliers. So I will warn the entrepreneur if something goes wrong, in finances management, the loss will bear the whole company. That is why the procedure for generating a report is of fundamental importance. And all activities related to finance are mentioned in the report to judge the company’s current state or position.

What are the benefits of the cash flow statement?

The Cash Flow Statement, or simply DFC, is part of the Financial Statements and is very important for the management of any business. Its functionality is extremely important for the financial and accounting management of a business. You must already aware from the some possible advantages when the manager is aware of your company’s cash flow: Among these benefits the most important are:

  • It brings data in a simple way, without the interposition of tax laws;
  • The report serves as an aid in making future decisions within the company. Assessing the need for loans or the possibility of new investments;
  • It is a way for new investors to be secure. A good report can bring new applications;
  • It improves the condition for comparing performance reports by different companies;
  • It is also a method of making comparisons with the company’s past. Thus being able to evaluate its growth. It allows the assessment of the company’s ability to produce resources, as well as compare the present and future value of cash;
  • It also provides a comparison of cash flow information from different periods, in order to better assess the conditions of future cash.

Why do you need cash flow statements?

Financial planning, nowadays, is extremely important for the company’s survival, bringing with it the supreme need for information and decision that sustains the company in constant liquidity situation. The company, regardless of its industry, has a natural movement of financial resources in and out over a given period. It can also be done all through the Cash Flow statements, accurately demonstrating the company’s financial situation at the exact moment of calculation.

Through the cash flow is a tool that opens the entrepreneur’s mind to the urgent need to plan, organize, coordinate and control financial resources in a given period in the form of cash flow statement, as this means the continuity of the enterprise, and the cash flow assists with very accurate in modern times, where it is not possible at any time to neglect the financial health of the company, being a valuable instrument used by the manager, with the objective of accurately calculating the sum of the company’s inflows and disbursements in a given period, forecasting thus, there will be surpluses or scarcity of resources, depending on the level desired by the company.

What does cash flow statement indicate?

The Cash Flow Statement (DFC) indicates which cash outflows and inflows were made during the period and the result of that flow. The cash flow statement shows or indicates the future shortages or cash surpluses when statement presenting predicted values compared to what was realized (on the date), With this, it allows managers to make early decisions about increased purchases, sales, cost rationalization and the right time to make investments. It even indicates the possibility of removing more problems without “bleeding” the company.

In a well-managed company, the bottom line of this cash flow statement report should always show positive results, indicating that cash is available. As the only daily cash balance does not necessarily indicate that the company is making a profit or loss in its operating activities. Therefore, the existence of the final balance must be confirmed preferably every day through a statement.

The daily balances report, both negative and positive, suggest the need for improvements in the financial organization. They can indicate two things: high-cost financing (negative balance) or application opportunity cost (positive balance), which could earn interest on applications or better payment terms with suppliers. Negative balances must be well analyzed and try to find out the causes of late payments, high default rate, a sudden drop in sales, etc.

How is cash flow different from the income statement?

The Income Statement for the Year (DRE) and the Cash Flow Statement (DFC) are two of the most important reports for a company’s economic and financial management, as they allow the analysis of the company’s economic and financial health from two different perspectives and complementary: cash and accrual basis.

Income statement

The income statement is the company’s balance sheet, which must be done monthly. It is also an x-ray that will indicate when the company will reach the “break-even”. It indicates how many units of a product need to be sold to cover fixed and variable expenses and production costs.

Cash flow

The cash flow is the financial situation daily. It is the amount that appears in your company’s bank account and the forecast of how much will come and go in the next few days. In the cash flow that the finance team controls the accounts payable and receivable and assesses how much money it needs to have in reserve to honor expenses in the future.

How is cash flow managed?

Through the calculations of the inflows and outflows and the launch of the receipt and payment forecasts, you can know in advance what will be the available balance of your business. This management can be done daily, weekly, or monthly. What determines the frequency is the frequency of entries and exits in your business since they are the ones that influence your available cash balance.

Let’s understand how to manage cash flows? Now that you have the data in hand, it’s time to implement the cash management routines. There is no miracle, to better manage cash flow you need discipline and routine. Ideally, you should have a daily routine of analyzing your cash, both current and future. It is important to analyze, for example, the launches: how the available balance will be in the next week, in 15 days and the next month. This analysis makes it possible – in case of future negative cash – to already plan an action, such as postponing or renegotiating payments to suppliers, cutting any scheduled purchase.

This analysis routine must be constant, because only then can you ensure that your cash balance is well managed and avoid unpleasant surprises. This routine also makes it possible for you to have your entire financial cycle mapped to understand all your capital terms and thus improve them.

How do you know if a company is positive cash flow?

With the correct filling of the cash flow, it is possible to calculate in advance what can be expected from the company for the next days, months, or years. A good manager understands the needs of your business and should, therefore, almost obligatorily, know how your company’s financial sector works, regardless of whether the company is small or large. This is the basis for success in the business world!

Positive cash flow happens when there are more inflows than outflows, which means that your company is running smoothly. Highly positive cash flow is even better and will allow you to make new investments (hire employees, open another location) and further increase your business. The company cash flow is positive when the amount that comes in is greater than the amount that comes out. There are, however, other variables influencing this movement of entry and exit.

Does the cash flow statement show a company’s stability?

The Cash Flow Statement is one of the main accounting reports of a company. Along with the cash flow, other essential reports for the finances and accounting of a business are the Balance Sheet and the Income Statement for the Year (DRE). All of them give a complete view of the company’s equity situation and performance and stability report whether the balance is positive (when the inflow is greater than the outflow) or negative (when the outflow is greater than the inflow). In this way, the manager is provided with precious information to make decisions about business finances. And he also remains up to date about company stability position and financial records.

As the Cash Flow Statement is the record of all changes in the company’s financial resources and mostly the cash flow statement focuses on the company’s cash, it provides a good short- and mid-term view of a company’s stability by providing the company finance details through the income statement, balance sheet and cash flow statement. Monitoring the cash and projecting operating cash flow out can identify potential shortfalls in advance that’s why you can judge the company present position very clearly and find ways to solve the problems of the company.

Is cash flow a profit?

The daily practice, one soon realizes the enormous importance of this cash flow control when making decisions. Cash flow is the most important indicator of a company, it will show the balance of the company’s financial inflows (+) and outflows (-). The money is available for its use in the most diverse applications.

The cash register shows, in the medium and long term, the financial health of a company. As the cash flow will reflect the day-to-day business and most company operation, new projects and improvement in the various field can be made according to the cash flow report and company profit and loss also depend on this cash flow report. That’s why correct cash flow management can lead the company towards success.

How can you reinvest positive cash flow into growing the business?

Money is the currency of your business, it is the main means by which we acquire products, services or experiences. Therefore, the search for a source of investment is a two-way street, we seek capital to invest in something with the objective of generating a return, that is, capital will provide the development of some activity to generate some useful results. However, as your business progresses, you will need to reinvest the money to maintain growth. It is essential to have an orderly and methodical control of your cash flow.

So, your positive cash flow will reinvest more for growing business, For this, first of all, you have to make the strategy and if you’ve already one or more strategies for investing your positive finances. Then talk to your financial advisor and get your cash flow in order. A useful option is to talk to the providers or financial consultants. So you can invest your money in a perfect way with proper planning. This is an example of communication being essential while maintaining strong strategies to invest.

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