What Is a Cashflow Statement?
Cashflow Statement is a financial summary of Cash and Cash Equivalents that enter and leave the company within a period. The United States Financial Accounting Standards Board has included Statement of Cashflows as part of mandatory financial reporting since 1987. As a supplement of Balance Sheet and Income Statement, Cashflow Statement measures the ability of a business in generating cash income to pay off debt obligations.
Benefits of a Cash Flow Statement
There Are Three Categories in A Cashflow Statement Which Classify the Financial Nature of a Particular Cash-related Transaction.
Towards the end of a Statement of Cashflows, the beginning and ending balances are shown respectively to indicate the net cash change during the period. Note that Cashflow Statement is different from Income Statement and Balance Sheet in a way that it does not include future incoming and outgoing cash activities that has been recorded on credit.
Why Is It Important to Include a Cashflow Statement in Your Company’s Financial Performance Evaluation?
In addition to legal compliance, the Statement of Cashflows provides additional financial information for potential investors regarding the corporation’s liquidity, solvency, and financial flexibility. It is a perfect indicator in showing the preparedness of your business for any emergency. It also lists out where the cash inflows are coming from and where the cash outflows are spent. It allows investors to make accurate investment decisions.
How Do We Evaluate a Statement of Cashflows?
Stable cash inflow is the basis of a healthy and solid business. Corporations can have negative net cash provided by operating activities on the Cashflow Statement, while reporting a positive net income on the Income Statement. This is exactly why the Statement of Cashflows is crucial, especially for businesses that seek for improvements in cash-related transactions.
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