The Importance of the Cash Flow Statement
For those who do not know, a cash flow statement is one of the main financial statements which is used to measure the financial strength of your business. The cash flow statement will allow you to see whether the cash flow is strong or not. When the cash flow is strong, it means that your business is in a good position and you can expand your business.
Not only that but by using this statement, you can also see that there are many opportunities and you can invest in new projects. To put it simply, the financial statement will show you the constant inflow and outflow of cash. Do keep in mind that you must maintain the cash outflow and inflow properly. The reason is that because the financial statement exists to ensure the changes in the cash position of your business and it can also help in managing the business.
Things You Need to Know about the Cash Flow Statement
Cash Flow Statement or CFS is one of the main financial statements which will provide you with the average data for all of the cash inflow which is received by the company and the cash outflow which the company pays for the investments and operations. There are two methods and two forms of accounting which are used to make a CFS including the accrual and cash-based systems.
The Components of the Cash Flow Statement
There are three components of the cash flow statement template.
- Cash Flow from Operations
The first component is the cash flow from the operational business activities. This component will measure the cash inflows and outflows from the core. This component will also show you the amount of cash generated from the company’s products and services. Not only that, but this component also shows the changes occur in the inventory, depreciation, accounts receivables, accounts payables, and cash.
- Cash Flow from Investing
The second component is from the investment. Things which are related to investments such as equipment and assets belong to this component. In this component, when the cash is used to buy new assets such as equipment, buildings or marketable securities, the cash changes from investment to a cash-out item. Meanwhile, when the company divests from an asset, the transaction will change into a cash-in item.
- Cash Flow from Financing
The last component in the cash flow statement is from the financing. Loans, debts, and dividends belong to this component. The transaction in this component is counted as a cash-in item as soon as the capital is raised.