Cash Flow Statement: Operating, Investing and Financing

Of all the statements used to assess a business’s financial health, the one most often overlooked is the cash flow statement. Yet companies often get into trouble not because they make losses but because they run out of cash.

Three activity groups

Group	Content	Example
Operating activities	Cash from the core business	Customer collections, supplier payments, payroll and tax payments
Investing activities	Purchase and sale of fixed assets	Buying machinery, selling real estate
Financing activities	Debt and equity movements	Taking a loan, loan instalments, capital increase, dividends

In a healthy business, cash from operating activities should be positive. A structure that survives only on constant financing is considered risky.

Two methods

• Direct method: Lists receipts and payments directly.
• Indirect method: Starts from net profit and adjusts for non-cash items such as depreciation and for changes in receivables, stock and payables to arrive at cash.

Why does it matter?

• It is one of the core documents requested in a concordat application and in bank restructuring talks.
• The payment plan and maturity match can be seen here.
• In a growing business, it shows how an increase in stock and receivables consumes cash.

For short-term forecasting, see the 13-week cash flow forecast method.

How Denova can help

In our Financial Advisory service we prepare your cash flow statement, work out why profit and cash differ and build a payment plan.