If you want to know how much cash your company has right now, the cash flow statement is the place to be. Perhaps the most straightforward of the Big Three Financial Statements, the cash flow statement (also called the statement of cash flows) details the flow of money into and out of your business. Understanding your cash on hand is critical to making smart decisions about paying bills and purchasing inventory.
Here’s a brief overview of how the cash flow statement works:
The total cash added or used by Operating, Investing and Financing activities are summed to arrive at the total change in cash for the period, and then added to opening cash to arrive at the cash flow statement’s bottom line, Cash on Hand. Simply put:
Operations + Investments + Financing = Cash on Hand
- Operations = all transactions having to do with the product or service the company provides, including accounts receivables, accounts payables, and inventory.
- Investments = long-term changes to equipment, acquiring or selling assets.
- Financing = cash received from investors as well as cash that flows to shareholders.
Lenders and creditors are especially interested in seeing a company’s cash flow statement because it provides a comprehensive view of how your business operates, where it's making money, and how you make choices about expenses.
For instance, Jane Smith from Lyon’s Den wants to forecast operational spending for the next fiscal quarter. She turns to the cash flow statement to review the last few quarters to identify any problems and see where opportunities occur.
Step 1: On the left navigation, hover over Reports and click Cash Flow Statement.
Step 2: Adjust the Period and Date Range, in the top panel, to focus on a particular time frame. Here, Jane adjusts the Period to Custom and uses the calendar tool in the Date Range to select January 1, 2018 - June 30, 2018, focusing her report on the last two quarters.
Click Update to see the changes reflected on the Cash Flow Statement.
Here you can dive into the three sections of the Cash Flow Statement - Operating activities, Investing activities, and Financing activities. Each section condenses all cash inflow and outflow into general accounting buckets, such as Accounts Receivables and Equipment.
Jane concentrates on the Operating activities section to discover opportunities and problems.
To the left of each category is either a green + or red minus symbol. The “+” indicates adding the line item back into your net income and the “-” indicates subtracting the line item from your net income. Clicking on either symbol will take you to a new window listing all transactions nested under the selected line item.
For example, Jane clicks on Accounts Payable to dive deeper into what is owed to creditors.
Step 3: To dive deeper into your Cash Flow Statement, click the gear icon in the upper right corner.
Here you can choose to view account numbers in each line item.
Step 4: Once you’ve finished the review of your Cash Flow Statement, you can export your report. Go to the upper right corner near the gear icon and click on Export. Jane decides to export the report as an Excel file to further filter the data.
With your Cash Flow Statement, you can quickly understand the liquidity of your company at a given period of time. This report acts as an early warning system for your company’s cash flow but is just one piece of the financial statement pie. With the Balance Sheet and Profit and Loss Statement, you have a complete view of your company’s financial health (or pie!).