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do-you-know-what-a-cash-flow-statement-is-2 | Capital Office

What is a cash flow statement?

An essential concept in the financial management of business is cash flow. Financial analysts explain that cash flow refers to the resources generated by companies in a given period from its operating activities, investing and financing. The indicator is the result of the comparison of the financial inputs and outputs over a financial year.

The measure of cash flow represents the ideal solution for companies to identify their value, assess their finances and make decisions for the future.
Such measurement is the basic substance of cash flows. It portrays the sources and uses of money in circulation by companies, i.e. where it came from and what was used.

The cash flow statement includes three types of activities:

1. Operating activities. This is the main source of cash for companies without considering those practices relating to investment or obtaining financing.

Within this category you have to consider:

• Collection of cash from the sale of goods and services
• Cash payments for the acquisition of goods and services
• Collections and payments made to ensure the operation of your business
• Lost income, be it interest or cash payments.

2. Investing activities. These are the activities that relate to the acquisition or sale of fixed assets.

In this category are:

• Payments and receipts inherent in the sale of machinery, buildings, equipment, and in general all those enduring intangible assets and fixed assets.
• Investments in debt management and loans made by your business.

3. Financing activities. These are the practices associated with the hiring of financial obligations.

In this section you should include:

• Obtaining external financing or any other source provided it is not operating an internal financing source.
• Cash payments for the obligations of your business.
• Disbursements, cash reimbursement or distribution partners of your company.

After analysing all these components, your company should know its liquidity. This means its ability to meet financial commitments and generate immediate cash.