Cash flow statement

• Overall


  Indicates the movement of cash receipts (inflows) and cash payments (outflows) from transactions over a period of time

  Net cash flow = total cash inflow - total cash outflow

  Closing cash balance = opening cash balance + net cash flow
• Categories of cash flow

  There are 3 categories of cash flows:

  Operating activities → relates to the main activities of the business, inflows = sales and outflows = payments to suppliers, employees and other expenses

  Investing activities → these relate to the cash inflows and outflows from the purchase and sale of NCA and investments

  Financing activities → these relate to the cash inflows and outflows from borrowing activities of the business. Inflows = equity such as issue of shares and outflows = debt (payments of loans)
• What does it show?

  whether a firm can:generate a favourable cash flow (inflows exceed outflows)

  • pay its financial commitments as they fall due—for example, interest on borrowings, repayment of borrowings, accounts payable
  • have sufficient funds for future expansion or change
  • obtain finance from external sources when needed
  • pay drawings to owners or dividends to shareholders.