Subscribe to Aridni Which way does the Cash Flow?

If the three types of business activities are operating, investing, and financing, then there needs to be a way to provide information about the money going into and out of each piece. Thankfully through the miracle of modern accounting, we have a statement that does exactly that.

The statement that tracks these fluxuations in the cash flow is quite logically called, the ‘Statement of Cash Flows’. From this statement you can easily determine how a company is treating that little recourse that they work so hard to aquire.

Here is a sample statement to show you the three areas and their relationship to each other. You can see that it is in essence three cash flow statements (one for operating, one for investing, and one for the financing activities) wrapped up into one overall master statement.

Aridni
Statement of Cash Flows
For the month ending December 31, 3000
(In Gazillions of Planet Aridni Dollars)
Cash Flows from operating activities
Cash receipts from operating activities
Cash payments for operating activities		 $11,200
(5,500)
Net cash provided by operating activities $5,700
Cash Flows from investing activities
Purchased office supplies (5,000)
Net cash used by investing activities (5,000)
Cash Flows from financing activities
Issuance of common stock
Issued note payable
Payment of dividend		 10,000
5,000
(500)
Net cash provided by financing activities 14,500
Net increase in cash 15,200
Cash at beginning of period 0
Cash at end of period 15,200

If the operating activities result in a negative number, this is certainly a red flag for any established business. Have they lost the ability to make money? While the investing and financing activities can be a loss without nessicarily being harmful to the company.

If the company is not making enough from operations to cover their investing activities, this could be a red flag if it continues. Or it could be that they are simply paying for a loss with other financial activities.

It’s important to check that a company can generate sufficient cash from it’s operations to fund it’s investing activities.

This article written by Todd on 21st February 2007
Achieving Goals, Financing Your Ideas, Managing Finances

2 Comments »

  1. Aridni » Financial Statements a Succesful Business Needs to Know says

    […] Which way does the Cash Flow?Achieve the Opportunity You Really WantWhat’s your cut of the Retained Earnings?Think about keeping your customers/readersBusiness is just like Tetris – Always moving and Always ExcitingFind business success on your own termsMake A Strong Income StatementHow to Buy Your First HouseArchivesBalance Sheet Basics […]

    February 21st, 2007 | #

  2. Katie says

    Gosh, I didn’t realize how many of these accounting spreadsheets I had forgotten since college accounting. Thank you for these refreshers, Todd. I’ll definitely be hanging onto these articles!

    February 21st, 2007 | #

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