What's a Cash Flow Statement?
What's a Cash Flow Statement?
Cash flow is often considered the lifeblood of every business. Poor cash flow can seriously detriment your operations, even if you're 'profitable on paper' year-to-year. Utilising a cash flow statement is one of the best ways to gain transparency over your cash flow position.
A cash flow report is one of the many in-built reporting functions available for Xero users. We discuss the importance of using a cash flow statement and how Xero can make it easy to access your cash flow statement at the click of your fingers.
Why is a cash flow statement so important for businesses?
A cash flow statement is one of the fundamental financial statements businesses use to evaluate their financial health. It summarises the cash inflows and outflows over a specific period (typically monthly, quarterly, or annually). The cash flow statement aims to show how cash moves in and out of a business, providing insights into its operating, investing, and financing activities.
As a business owner, you can use a cash flow statement to help identify seasonal trends and payment cycles in your business, help predict cash surpluses or shortages, forecast your future business finances and plan ahead to ensure you have sufficient cash to cover expenses.
Your cash flow statement
When looking over your cash flow statement, you may notice that the report is segmented into three main parts:
- Cash flow from operation.
- Cash flow from investments.
- Cash flow from financing.
The final section provides a summary of your business' cash flow.
Operating activities
This section outlines the cash flows generated from a company's core operations, such as sales revenue, suppliers' payments, and operating expenses. It helps assess the company's ability to generate cash from its day-to-day business operations.
Investment activities
This section focuses on cash flows related to investing activities, such as purchasing or selling long-term assets (e.g., property, equipment, investments). It reflects the company's capital expenditures and investments in assets that are expected to generate future returns.
Financing activities
This section presents cash flows related to financing activities, including borrowing or repaying loans, issuing or buying back shares, and distributing dividends. It provides insights into how the company raises capital and manages its debt and equity.
Running a cash flow statement in Xero
Within Xero, your cash flow statement is referred to as The Statement of Cash Flows. You can access the report by:
- Selecting 'reports' in the 'accounting' menu
- Opening the Statement of Cash Flows - Direct Method report.
- From here, you'll need to select your required date range. (Note, you can also use the dropdown arrow to set a reporting period).
- Select any other options that you'd like the report to show.
- Click update.
Reporting options with your statement
Once you're familiar with running a statement of cash flows in Xero, you may also look into merging or splitting your debits and credits or adjusting your statement in line with some of the reporting options (for example, gross or net tax on operating activities).
Need help understanding or accessing your cash flow statement?
Analysing your cash flow statement is integral for business owners and accountants alike, to understand your organisation's liquidity, cash position and ability to meet its financial obligations. However, a cash flow statement is more than just that. At Bonerath & Co., we understand that your cash flow statement provides insight into your business trends and helps you make informed decisions regarding your business operations.
If you'd like to understand more about what your cash flow statement says about your business, or would like assistance in efficiently running the most effective statement for your needs, let the Bonerath & Co. team know — we're here to help!
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