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Cash Flow Statement

by Noah Howell

After the balance sheet and profit and loss statement, the cash flow is the most important financial statement. This section introduces the cash flow statement. The cash flow statement is described in detail in this chapter, including the various sections and the information they provide. Examples of how to put together a cash flow statement are also included.

General Cash Flows Statement

Profit and loss statements are frequently examined by investors and creditors in order to get a sense of a company’s future financial viability. However, the company’s net profit in the profit and loss statement may not always be correlated with the company’s cash flow from its operations. Depreciation, doubtful receivables, and other estimations contribute to the profit and loss statement’s net profit figure, but no such estimations are included in the cash flow statement.

According to a business’s financial statements, the cash flow statement serves as a record of the amount of money that a company receives and expends over the course of a given period. Operational activities, investment activities, and financing activities are all represented by sections of the cash flow statement.

Investors, creditors, and other users of financial statements benefit greatly from a cash flow statement because it reveals the amount and timing of future cash flows, as well as their uncertainty. Cash is just as critical to a company’s survival as blood is to a human body. It is impossible for a company to pay its employees’ salaries and debts, distribute dividends, and make equipment purchases if it does not have enough cash on hand. The cash flow statement reveals where the money comes from and where it goes.

In the cash flow statement, the following information can be found by those who use financial statements.

How much money was spent on tangible assets by Türk Telekom in 2013?

It’s not clear why Arçelik’s cash reserves decreased despite reporting a net profit in 2013.

Petrol Ofisi borrowed how much money last year?

“Cash and cash equivalents” is what is meant by the term “cash” when it is used to describe changes in cash flows and cash. As a general rule, cash equivalents are assets that are short-term, highly liquid, and easily convertible into cash at any time. With maturities of three months or less, these securities are eligible for inclusion.

Cash Flow Statement components

Each section of the cash flow statement shows how much money is coming in and going out from various sources, including operations, investments, and financing.

Cash generated by business operations

Money received from sales, payments to suppliers for raw materials, inventory expenditures or other costs, payments to employees and tax payments are all included. Using the cash flow generated by the company’s operations, it is possible for the company to pay its long-term debts, distribute dividends, and make new investments without the need for external funding.

Invested Capital Cash Flows

The purchase and sale of tangible and intangible assets are generally covered by this type of transaction. It shows cash outflows for items that are expected to generate future profits and cash flows.

Financial Activities Generate Cash Flow

For example, it includes things like obtaining loans from banks, repaying loan debts, putting money into a business by the partners, and paying them dividends. As a result, it’s important to separate out the cash flows generated by financing activities from those generated by other sources of revenue.

Form of Cash Flow Statement

The statement of cash flows includes cash flows from operating activities, cash flows from investments, and cash flows from financing. Investment and financing cash inflows and outflows are reported separately and are not netted. Cash inflows and outflows associated with the sale and purchase of land, respectively, are reported separately.

The difference between the balance sheet cash at the beginning and end of the period should be the period’s net cash increase or decrease.

Preparation of a Statement of Cash Flows

A cash flow statement must include at least the balance sheets at the beginning and end of each period, as well as a profit and loss statement for the period, as well as additional information about where the cash comes from and where it goes.

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