A cash flow statement is a financial statement which showcases the in and outflow of cash in a business. Cash flow statement is one of the main financial statements prepared by a company along with the income statement and balance sheet.

Why do you need a Cash flow statement?

Cash flow statement summarises the working capital for the period, cash brought in from sales, but not sales made on credit, insight about the cash position of the company. The statement enables us to determine how the company generates cash and to predict the company’s potential to generate cash in future. Also the statement will show the sources and uses of cash not related to the income statement.

What are the sections of the Cash flow statement?

 Cash flow statement reports a company’s major cash flows in the following categories:

  1. Cash flow from Operating Activities:

The first section in the statement includes regular business activities. Revenue from sale of products or services, dividends received, interest, and other cash receipts, outflows include payroll, overheads, taxes, and payments to suppliers and vendors.

The first entry in this operating activity section is the net income from the income statement for a corresponding period. The below table shows the cash flow from operating activities :

ParticularsAmount (Rs)
Cash flow from operating activities
Net incomexxx
Additions
Depreciation and Amortisationxxx
Increase in current liabilitiesxxx
Deductions
Increase in current assetsxxx
Net cash flow from operating activitiesxxx
  1. Cash flow from Investing Activities:

It is one of the main components of a cash flow statement. Cash flow from investing results from activities related to the purchase or sale of assets or investments made by the company (long term).It can be identified from changes in the fixed assets section of the long-term assets section of the balance sheet. Examples of cash flow from investing activities:

  •       Cash outflow from the purchase of an asset (land, building, machinery, etc.).
  •       Outflow of cash from the acquisition of another company.
  •        Inflow of cash from the sale of an asset.

Table showing items recorded in this section are:

ParticularsAmount (Rs)
Purchase of fixed assets(XX)
Purchase of marketable and non-marketable securities(XX)
Proceeds from sale of fixed assetsXX
Proceeds from sale of marketable and non-marketable securitiesXX
Loans advanced(XX)
Loan repayment realisedXX
Insurance proceedsXX
  1. Cash flow from Financing activities:

These activities related to cash transactions for business. For example borrowing, raising money from debt or stock, repaying, sales of your company’s securities and outflows include dividend payments and servicing debt. It also provides stakeholders insight about the company’s capital structure, how it is managed, and how far it can sustain with showcased capital.

The components of financing activities are shown in the table below.

ParticularsAmount (Rs)
Proceeds from issuance of short-term borrowingsxxx
Net change in short-term borrowings(xxx)
Repayments of long-term debt(xxx)
Stock repurchases(xxx)
Dividends paid(xxx)
Dividends paid to non-controlling interest(xxx)
Other financing activities(xxx)
Net cash flow from financing activities(xxx)

 

For any business having a positive and high cash flow is a good sign, though it does not by itself lead to success. Even profitable businesses have negative cash flow. Prepration of cash flow statement is a must while preparing project report for various business loans. Click to make Project report/Business plan with Finline.