Cash flow statement
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A cash flow statement is a financial report that shows incoming and outgoing money during a particular period (often monthly or quarterly). It does not include non-cash items such as depreciation. This makes it useful for determining the short-term viability of a company, particularly its ability to pay bills.
People and groups interested in cash flow statements include:
- Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
- Potential lenders/creditors, who want a clear picture of a company's ability to repay
- Potential investors who need to judge whether the company is financially sound
- Potential employees or contractors who need to know whether the company will be able to afford compensation
Cash flow statements are particularly important for start-up companies with limited liquid assets. These companies are vulnerable to devastating cash shortages, even when Accounts Receivable balances point to long-term financial health.
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Statement of Cash Flows
Statement of Cash Flow for the period 1/1/xx to 1/1/xx+1 Cash flow from operations (CFO) +/- x x Cash flow from investing (CFI) +/- y y Cash flow from financing (CFF) +/- z z Equals change in cash account = change of cash balance + Beginning of period cash + Beginning cash = Ending cash balance = Ending cash
Operating activities
Investing activities
Financing activities
- Dividends paid
- Sale purchase of stock
- Net borrowings
Preparation methods
Direct Method
Shows the major classes of gross cash receipts and payments.
Indirect Method
Shows the net profit or loss as a starting point and makes adjustments for all transactions of a non-cash nature, deferrals or accruals of operating cash receipts or payments, and items of income or expense associated with investing or financing activities.
Example
Citigroup Incorporated cash flow: ([1] (http://finance.yahoo.com/q/cf?s=C&annual)) ([2] (http://www.citigroup.com/citigroup/fin/ar.htm))
| Period Ending | 31-Dec-03 |
|---|---|
| Operating Activities, Cash Flows Provided By or Used In | |
| Net Income | 17,853 |
| Adjustments To Net Income | 13,260 |
| Depreciation | 2,121 |
| Changes In Liabilities | 31,571 |
| Changes In Inventories | - |
| Changes In Other Operating Activities | (93,847) |
| Total Cash Flow From Operating Activities | (14,854) |
| Investing Activities, Cash Flows Provided By or Used In | |
| Capital Expenditures | (2,354) |
| Investments | (23,757) |
| Other Cashflows from Investing Activities | (20,196) |
| Total Cash Flows From Investing Activities | (46,307) |
| Financing Activities, Cash Flows Provided By or Used In | |
| Dividends Paid | 5,773 |
| Treasury stock acquired Paid | (2,416) |
| Issuance of long-term debt | 67,054 |
| Payments and redemptions of long-term debt | (45,800) |
| Change in deposits | 42,136 |
| Contractholder fund deposits | 8,346 |
| Contractholder fund withdrawals | (5,976) |
| Cash flows from financing activities of continuing operations | 64,405 |
| Effect of exchange rate changes on cash and cash equivalents | 579 |
| Change in cash and due from banks | $3,823 |