The statement of cash flows is something that simply put reflects company’s net flows of cash. If negative, the company is spending more than it earns from operations or gets through financing and if positive, company has generated more cash than it has managed to spend on its activities and investing.

The statement itself is all about actual cash movement – the number one and key question at all times when preparing cash flows is did the cash actually move? It’s often forgotten and the amounts shown don’t always reflect the real cash movement. Always follow the money!

One other key aspect to preparing the statement is trying not to overthink – we have seen many accountants getting stuck at the simplest things. Start from the top; take a structured approach (i.e. calculating all fixed assets relating lines with one go, loan receivable and payable balances as another group etc.) and follow it. Only this way you can make sure that all cash movement gets disclosed and properly grouped.

If properly done, the statement of cash flows gives an overview of how well or poorly the company is managed. Something that consumes more resources than it generates, is never a good thing to invest in. As such, the statement itself is extremely important to possible investors – on one side it gives an overview of management operating style and capabilities, but also the efficiency and whether possible financial difficulties lie ahead (i.e. close to zero operating cash flows indicate a possible inability to pay back current borrowing liabilities due in less than 12 months).

As money is something a business should be generating, the statement of cash flows is of real importance.