CashFlow Statement (CFS)

Hello Everyone,

Today we are going to talk about another financial statement called cash flow statement (CFS).

Let’s first agree on the definition of cash flow statement.

A cash flow statement, also known as statement of cash flows, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent.

We have mentioned operating, investing and financing activities; let’s figure out what these activities are.

Operating Activities are the revenue generating activities of a business e.g., cash received and disbursed for product sales, royalties, commissions, fines, lawsuits, supplier and lender invoices, and payroll fall under operating activities category.

Investing Activities constitute of payments made to acquire long-term assets, as well as cash received from their sale. Activities like purchase or sale of securities of other entities, purchase of fixed assets fall under investing activities.

Financing Activities are the ones that alter the equity or borrowing of a business. Some examples are sale of company shares, re purchase of shares, dividend payments.

Here is a format for CFS that can present the cashflows of a business for a year.

Uses of Cash Flow Statements

Here are a few ways the statement of cash flows is used.

1.     provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances

2.     provide additional information for evaluating changes in assets, liabilities and equity

3.     improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods

4.     indicate the amount, timing and probability of future cash flows

This is all about today's post. we will discuss CFSs in more detail in some other blog.

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And in the end there is a message to me that I am not accepting so far

I’m sorry for all misdeeds
This is wrong because it has affected rather ruined you badly
In the future, I will be careful not doing like thi
Will you forgive please me? :(

Financial Statements

Hello Everyone, 

Our Today’s topic should have been the first of the chain, but it’s never too late J

So, Today we are going to focus on what a financial statement is. Let me add here a statement I heard recently that financial statements are scorecards. Every single figure is telling you a story behind it. You just got to start reading this story. Well, a formal definition of financial statements is something like,

Financial statements are a collection of reports about an organization's financial results, condition, and cash flows. They are useful for the following reasons: 

• To determine the ability of a business to generate cash, and the sources and uses of that cash.
•  To determine whether a business has the capability to pay back its debts. 
• To track financial results on a trend line to spot any looming profitability issues. 
• To derive financial ratios from the statements that can indicate the condition of the business.
• To investigate the details of certain business transactions, as outlined in the disclosures that accompany the statements

      Now coming to the major types of financial statements; they include 

•  Balance Sheet
• Income Statement
• Cash Flow Statement
• Owner’s Equity Statement

And now, one liner on each type of statement,

Balance Sheet presents the financial position of an entity at a given date. It is comprised of the following three elements: asset, liability and equity.

Income Statement also known as the Profit and Loss Statement, reports the company's financial performance in terms of net profit or loss over a specified period. Income Statement is composed of the following two elements: income and expense.

Cash Flow Statement presents the movement in cash and bank balances over a period. The movement in cash flows is classified into the following segments: Operating Activities, Investing Activities, and Financing Activities.

Owner’s Equity Statement also known as the Statement of Retained Earnings, details the movement in owners' equity over a period. The movement in owners' equity is derived from the following components: Net Profit, Share Capital Issued or repaired during a period, Dividend payments, Gains or Losses, Effect of change in accounting policy or effect of correction in accounting error.

  

Stay Good :)

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And in the end there is a message to me that I am not accepting so far

I’m sorry for all misdeeds
This is wrong because it has affected rather ruined you badly
In the future, I will be careful not doing like thi
Will you forgive please me? :(