The cash flow statement is one of the most important financial statements that a company can produce, as it provides a detailed overview of the company’s cash inflows and outflows over a specific period of time. This information is essential for understanding a company’s financial health and for making informed investment decisions. There are many different ways to format a cash flow statement, but a common approach is to use the indirect method, which starts with the company’s net income and then adds back any non-cash expenses and subtracts any non-cash income to arrive at the company’s operating cash flow. Below is an example of a simple cash flow statement template that you can use to get started.
Operating Activities
The operating activities section of the cash flow statement shows the cash that a company has generated from its core business operations. This section typically includes items such as revenue, cost of goods sold, depreciation and amortization, and changes in working capital. A company’s operating cash flow is often used to measure its profitability and its ability to generate cash from its normal business activities. A healthy operating cash flow is a sign that a company is generating enough cash to cover its expenses, invest in its business, and return cash to shareholders.
The indirect method of calculating operating cash flow starts with the company’s net income, and then makes adjustments for non-cash items like depreciation. This method is often preferred because it is easier to understand and can be calculated using information that is readily available from a company’s income statement and balance sheet.
Investing Activities
The investing activities section of the cash flow statement shows the cash that a company has spent on capital expenditures, such as the purchase of property, plant, and equipment. This section also includes cash that has been used to invest in other companies, such as through the purchase of stocks or bonds. A company’s investing cash flow is a measure of its commitment to growth and its ability to generate future cash flows.
A positive investing cash flow indicates that a company is investing in its future, while a negative cash flow indicates that a company is selling assets or reducing its investments. A company’s investing cash flow is often used to assess its risk profile and its ability to generate long-term value for shareholders.
Financing Activities
The financing activities section of the cash flow statement shows the cash that a company has raised through the issuance of debt or equity, and the cash that has been used to repay debt or repurchase stock. This section also includes cash that has been used to pay dividends to shareholders. A company’s financing cash flow is a measure of its ability to raise capital and its cost of capital.
A positive financing cash flow indicates that a company is raising capital, while a negative cash flow indicates that a company is repaying debt or repurchasing stock. A company’s financing cash flow is often used to assess its financial leverage and its ability to meet its financial obligations.
Conclusion
The cash flow statement is a valuable tool for understanding a company’s financial health and its ability to generate cash. By analyzing the cash flow statement, investors can gain insights into a company’s profitability, growth prospects, and risk profile. Sample cash flow statement templates are available online and can be used to create a cash flow statement for any company.
If you need help creating a cash flow statement, there are many resources available online and you can also consult with a financial advisor.
