I’ve mentioned before about understanding the worth of the cash flow statement, in this article I show you vital sections. The statement will show one how a business cash is being obtained and used. It clearly brings together the net income with the accurate value of cash coming into the business and those leaving it. The cash flow shows what a firm is dealing in with its cash. It also shows how much the company gets and the source of the money. This is usually done at the end of every financial year. On a cash flow statement, any number that shows money is moving out of the business is termed as negative; for example, buying equipment. Cash flowing into the business is marked positive. In order to obtain a cash flow statement, one needs both a balance sheet and an income statement. It is important to note that half year financial statements are those reported in quarters that is those accumulated from the previous year. For one to determine this, it is important to get the financial statements during that period and subtracting values from each other.
A cash flow statement is usually divided into three sections and can be presented as below:
- Operating costs
- Investing costs
- Financial activities.
A) Cash from operating activities
- 1. Indirect method
In this presentation, the section starts with the net income. It is then adjusted for all expenses or non-cash income then ends with the cash flow.
- 2. Direct method
This begins with revenue, then adds and subtracts all expenses that include salary payment and inventory purchases. This also includes cash receipts coming from accounts received. After this there is net cash from operation activities. This can also be found by using the indirect method.
B) Cash from investing activities
This part clearly shows all the money the firm spent or received through investments.
C) Cash from financing activities
This component shows how the firm is raising extra cash like those from debt and issuing stock and how the cash is shared together with investors.
Final net cash
To obtain this, one needs to add up all the three above and get the net cash flow of a business. This statement is important to enable one to know the exact position of the business in terms of cash flow and the likely outcomes in future. It is quite clear that three statements are needed to ascertain that the business is in a good position in terms of financial monitoring.
February 1, 2016