A company's cash flow statement tells the rest of the world whether the business in awash in money or scraping by in near-insolvency. Accounting managers prepare liquidity reports in accordance with United States Securities and Exchange Commission guidelines and generally accepted accounting principles. These edicts require that managers publish cash flow statements at the end of a period, such as a quarter or fiscal year.
Definition
A cash flow statement is an accounting summary detailing the tactics and initiatives corporate leadership uses to generate sales, help the business make more money and stay ahead of the competitive pack. The idea is to show, initiative by initiative, how the company is wielding its commercial influence to attract more customers and outflank rivals. There's no such thing as a net cash flow statement. The closer concept is net cash, but it's distinct from net cash flow statement or cash flow statement. Financial commentators use the terms "statement of cash flows," "liquidity report" and "cash flow statement" interchangeably.
Operating Cash Flows
Operating cash flows describe the strategies a business relies on to expand operations, indicating why the company is intensifying its marketing efforts or shedding costs in moribund segments. These liquidity movements also indicate whether top leadership's credit-risk memoranda are effectively helping the business reduce bad debt. This represents money the company may not recover from clients because of defaults. Operating cash flows include remittances to vendors and service providers as well as receipts from clients.
Investing Cash Flows
An organization invests in long-term activities to win the economic competition and set itself up for future success. Investing cash flows show how management is relentlessly building up the company's asset base, demonstrating how long department heads intend to use specific assets to improve efficiency and productivity. If a company, for example, buys equipment with a 10-year useful life, this might indicate that segment chiefs believe the asset would be instrumental to the company's success in the next decade. Investing cash flows include purchases and sales of long-term assets, such as real property, equipment and production machinery.
Financing Cash Flows
Financing operations enable a company to cope with specific monetary problems. These may come from increased customer attrition, reduction in revenues and growing competition. Financing cash flows deal with anything the business does to raise money and fund its operations, especially when it comes to financing strategically relevant long-term expansion initiatives.
Net Cash Balance
At the bottom of a statement of cash flows, accountants calculate net cash flows. This sums up the total net cash of all three sections in the liquidity report.
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