A cash flow statement can look scary at first but it’s a super important financial tool that tells you where your money is coming from and where it’s going. Let’s break it down so you can understand it easily.
Content Outline
Key Takeaways
A cash flow statement shows cash in and out of your business over a certain period of time.
It’s divided into three sections: Operating Activities, Investing Activities, and Financing Activities.
The bottom line shows your net cash movement and whether you’re gaining or losing cash.
What Is A Cash Flow Statement?
A cash flow statement is a financial document that shows cash in and out of your business. It’s usually broken down into three parts:
- Cash Flow from Operating Activities – Money made or spent through day-to-day business.
- Cash Flow from Investing Activities – Cash earned or used for investments like buying or selling assets.
- Cash Flow from Financing Activities – Money gained or spent through loans, equity or dividends.
In simple terms, this statement shows how well your business is managing its cash to fund operations, investments and growth.
How To Read A Cash Flow Statement for Dummies?
Let’s break it down step by step:
1. Time Period
First off, please note the time period of the cash flow statement. It could be monthly, quarterly or yearly. This gives you context to the cash flow for that period.
2. Cash at the Beginning of Period
This is the cash balance your business started with at the beginning of the period. It’s a baseline to measure the changes in cash flow.
3. Cash Flow from Operating Activities
This section is about cash made or spent through day-to-day business. Key items include:
- Cash from Sales: Money collected from customers for goods or services.
- Cash Spent on Inventory: Payments made to buy inventory.
- Cash Spent on Payroll: Salaries and wages paid to employees.
- Interest Paid: Interest paid on loans or credit lines.
- Other Expenses: Utilities, rent and other operational costs.
The net cash flow from operations is the cash left over after all operating expenses are deducted from cash earned.
4. Cash Flow from Investing Activities
This section shows cash used for or earned from investments. Examples include:
- Sales of Assets: Cash from selling equipment, property or other business assets.
- Purchases of Assets: Cash spent on buying new equipment or property.
The net cash flow from investments shows if the business is investing more than it’s earning from asset-related activities.
5. Cash Flow from Financing Activities
This section includes cash from loans, equity or payments to investors. Examples are:
- Cash from Investments or Loans: Cash inflow from investors or borrowed funds.
- Dividends Paid: Payments to shareholders.
- Loan Repayments: Cash used to pay back loans.
Net cash from financing is the balance of cash gained or lost in this category.
6. Net Cash Movement
This is the total cash movement for the period. It’s calculated as:
Net Cash Movement = Net Cash Flow from Operations + Net Cash Flow from Investments + Net Cash Flow from Financing
7. Summary
In summary,
- Opening Balance: Cash at the start of the period.
- Net Cash Movement: Total cash movement for the period.
- Closing Balance: Cash at the end of the period. Calculated as: Opening Balance + Net Cash Movement.
How To Read A Cash Flow Statement in Xero?
Xero makes it easy to view and read cash flow statements. Follow these steps:
- Log in to Your Xero Account: Navigate to the Reports section.
- Select Cash Flow Statement: Choose the desired time period.
- Review Each Section:
- Identify cash flows from operations, investments, and financing.
- Look at net cash movement to assess overall cash health.
- Compare with Past Periods: Use Xero’s tools to compare statements and identify trends.
- Export for Analysis: If needed, export the statement to share with your team or accountant.
How Can FastLane Help
At FastLane, a platinum partner and Xero Certified Advisor, we understand that managing cash flow is critical for your business’s success. Our team of experts can help you:
- Set up and customize cash flow reports in Xero.
- Provide detailed insights and analysis to improve cash flow management.
- Offer guidance on interpreting cash flow statements for better financial decisions.
Get in touch with FastLane today to take the burden of your cash flow management!
