What is a cash flow statement, and the benefit of using it?

Apr 7, 2021 12:16:26 PM / by Claire Flanagan

What is cash flow statement?

A cash flow statement or statement of cash flow 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 then the beginning of the period, it has negative cash flow.

Benefit of using cash flow statement?

  • One of the benefits of the cash flow statement is that it provided you a detailed look at the changes in the amount of cash that a 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 that it once did or if it is losing cash. This helps you get a broad view if the success of the company when combined with the other statements.
  • Another benefit of using cash flow statement is that it tell 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. The cash flow statement can help determine whether a company has enough liquidity or cash to pay its expenses. A company can use a cash flow statement to predict future cash flow, which helps with the matters of budgeting.

Tags: Wednesday Wisdom, Accounting Questions, Creative Industries, Financial Reporting, Cash Flow, Profit & Loss, Balance Sheet, Income Statement

Claire Flanagan

Written by Claire Flanagan

Claire is there to help you focus on specific financial challenges you may have within your business, by providing you with bespoke insight.

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