Analyzing The Cash Flow Statement

Cash Flow Statement - Complete Controller

For any business or company, a cash flow statement is one of the most significant and essential financial statements they will produce. The statement might be easy and uncomplicated as a one-page analysis statement or might consist of quite a bit of detail that feeds the figures in a central statement. As a business owner, it is important to know what you are reading and how to interpret the data. 

A cash flow statement is like a record of all the cash that flows in and out of a project or business. Think of it just like the checking account at your bank. The deposits are like the cash inflow, and the withdrawals (in the form of checks) are like cash outflows. Your checking account’s balance is like your net cash flow for a certain period. ADP. Payroll – HR – Benefits

Just as bookkeeping helps provide all the necessary and relevant information from which all the accounts are formulated, every transaction, whatever its nature (purchase or sale) is, should be recorded. This is the information that will be found on that cash flow statement.

A forecast of future cash flows is known as a cash flow budget. Think of it as a forecast of future withdrawals and deposits in your checking account. A cash flow statement is related to the total amount of cash flows and the timing of those flows.

Most of the cash flows are formed for many periods. It may take over a year to register monthly cash outflows and inflows. The remaining cash balance is projected at the year’s end, as well as each month’s cash balance.

What Is the Purpose of a Cash Flow Statement Analysis?

The objective of a cash flow statement is to see where the cash inflows are being generated and where the cash outflows are being spent for a certain time (generally annually and quarterly). The purpose of a cash flow statement is to analyze a company’s long-term solvency and liquidity.

Complete Controller. America’s Bookkeeping ExpertsThe cash flow statement involves using cash-based accounting instead of accrual-based accounting. Most businesses use it for their income statement and balance sheet. This is essential because a corporation might have accumulated accounting revenues but not have received the cash. A cash flow statement analysis can produce taxes payable and profits but not offer the means to stay secure and creditworthy.

A cash flow statement delivers information on a company’s solvency or liquidity. The cash flow clearly shows a business’s financial resources for a certain time.

What Are the Cash Flow Statement Components?

A cash flow statement component gives a comprehensive vision of cash flow from financing operations and investing.

Finance Activities

The cash flows from the finance activities refer to the cash outflows towards the entities’ investors (such as paying interest to bondholders) and shareholders (such as paying stock buybacks and dividends). Cash flows from the finance activities also include cash inflows received through the disbursement of stock equity or sales of bonds.LastPass – Family or Org Password Vault

Many cash flow finance activities comprise cash outflows because most entities occasionally provide stocks and bonds.

Operating Activities

The remaining sum of cash leaving or coming in through the daily business operations is known as cash flow from operations. It consists of the operating income and non-cash items, such as depreciation.

Investing Activities

Cash flow through investing activities will consist of cash outflow for long-term assets like equipment, land, buildings, etc., as well as inflows from the sale of securities, assets, businesses, etc.


In conclusion, understanding the cash flow statement is vital for business owners. It serves as a record of financial health, helping analyze solvency and liquidity. The components – operating, financing, and investing activities – provide a comprehensive view, aiding in strategic financial planning for the business’s future. Proper interpretation of this statement is crucial for making informed decisions and ensuring the company’s long-term success.

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