What is Cash Flow Statement?

For a business to run smoothly, cash and funds are essential. They are often perceived as one and the same. A business's cash flow can be distinguished from its fund flow by the fact that cash is referred to by companies as their physical currency.

A cash flow statement tells us how much cash flows in and out of a business, i.e., inflows and outflows. A cash flow applicability statement is one of the most important elements of analyzing a company.

Cash flow statements serve two primary purposes: reporting changes in cash position at a particular time and determining whether profits can be reflected in cash.

The cash flow statement is based on the cash basis of accounting and records transactions when the business receives and expends cash over a specified period such as a year, half year, or quarter.

The primary purpose of a cash flow statement is to show a company's financial performance over a certain period by taking into account accruals and deemed payments, such as debtors, that have not yet been converted into cash. In contrast to profit and loss accounts, this is a different kind of account. know the difference between cash flow and fund flow statements.

The cash flow statement is divided into three heads:

• Financing activities

An entity's financing activities include all the cash it generates or incurs through financial transactions. For example, dividend payments, dividends received, loans repaid, shares issued, bonds issued, or loans taken are all financing activities.

• Investing activities

Under the heading of cash flow from investing activities, all inflows and outflows of cash related to the purchase and sale of fixed assets are included.

• Operating activities

1. The main operating activities of a company are depicted by the income or expenses generated. Manufacturing, sales, marketing, and hiring are examples of operating activities used by a business on a daily basis.

1. A company's cash inflow could be generated from sales of goods and services, cash from debtors, or any other form of cash receipt.

1. Additionally, cash outflows under operating activities include payments made as salaries, payments made to creditors or payments made for expenses.

1. This would be done by adding back the non-cash transactions that were subtracted from the income and loss statement.

To fundamentally analyse a company, the cash flow statement is one of the most important metrics. By assessing a company's liquidity position and its ability to convert its revenues and profits into cash, we are able to assess the company's financial strength.

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