A cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company. The indirect method of preparing a cash flow statement starts with net income and adds back non-cash expenses and subtracts non-cash gains to arrive at operating cash flow. This method is often used because it is easier to prepare than the direct method.
There are many different templates available for preparing a cash flow statement using the indirect method. Some templates are simple and easy to use, while others are more complex and provide more detail. The best template to use will depend on the specific needs of the company.
Operating Activities
The operating activities section of the cash flow statement shows the cash generated and used in the company’s core business operations. This section includes items such as:
- Net income
- Depreciation and amortization
- Changes in working capital
- Interest paid
- Taxes paid
The net cash provided by operating activities is a key metric for evaluating a company’s financial health. A positive net cash flow from operating activities indicates that the company is generating enough cash to cover its expenses and invest in growth.
Investing Activities
The investing activities section of the cash flow statement shows the cash used to purchase and sell long-term assets, such as property, plant, and equipment. This section also includes items such as:
- Purchase of property, plant, and equipment
- Sale of property, plant, and equipment
- Investments in other companies
- Proceeds from the sale of investments
The net cash used in investing activities is important for evaluating a company’s long-term growth prospects. A company that is investing heavily in its future will typically have a negative net cash flow from investing activities.
Financing Activities
The financing activities section of the cash flow statement shows the cash raised and used to finance the company’s operations. This section includes items such as:
- Issuance of stock
- Repurchase of stock
- Payment of dividends
- Issuance of debt
- Repayment of debt
The net cash provided by financing activities is important for evaluating a company’s financial leverage. A company with a high level of debt will typically have a negative net cash flow from financing activities.
Conclusion
The cash flow statement is an important financial statement that provides information about a company’s cash inflows and outflows. The indirect method of preparing a cash flow statement is often used because it is easier to prepare than the direct method. The cash flow statement can be used to evaluate a company’s financial health, long-term growth prospects, and financial leverage.
When preparing a cash flow statement template indirect method, it is important to use a template that is appropriate for the specific needs of the company. There are many different templates available, so it is important to choose one that is easy to use and provides the necessary level of detail.
