Statement of cash flows

Cash flows are in fact very important for your company. ‘Cash’ in itself is a resource usable for everything your business needs to keep on running – buying goods to sell, paying for wages, buying services and so on. It’s also a resource to be paid as dividends, i.e. owner’s income from the operations of the company. 

Understanding whether you have inflows or outflows of cash is crucial to evaluating whether your business is in fact generating or losing cash. For this purpose there’s the ‘statement of cash flows’ that’s prepared for a reporting period and separate into groups – operational activities, investing activities and financing activities. We’ll cover those in our later posts.

The thing with statement of cash flows is that it’s not often enough prepared for some reason. Although it’s not required more often than just once a year when you prepare the Annual Report, I suggest you take the time and alongside with each period’s balance sheet and income statement you prepare to understand where your company stands performance wise, you also add up your company’s cash flows to understand whether there’s money flowing in or out from your company and it’s business.