What is a cash flow statement?
A cash flow statement tells you how much cash is entering and leaving your business. Along with balance sheet and income statements, it is one of the three most important financial statements for managing your small business accounting and making sure you have enough cash to keep operating.
When a company has more cash at the end of the period than it did at the beginning of the period, the business has a positive cash flow. On the other hand, if the company has less cash at the end than at the beginning of the period, it has negative cash flow.
Benefits of using a statement
One of the benefits of the cash flow statement is that it provides you with a detailed look at the changes in the amount of cash that your company holds over time. It’s not a statement that provides you with absolute information such as a balance sheet or an income statement. Instead, it looks at whether the company is accumulating more cash than it once did or if it is losing cash. This helps you get a broad view of the success of the company when combined with the other statements.
Another benefit of using a cash flow statement is that it tells you whether the company has enough money to expand.
The bottom line is that a cash flow statement is a valuable measure of strength, profitability and long term future outlook for a company. It can help determine whether a company has enough liquidity or cash to pay its expenses. A company can use also use a statement to predict future cash flow, which helps with the matters of budgeting.
