Understanding the Statement of Cash Flows

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Have you ever had a profitable month, quarter, or year and still wondered where the heck is all my money?

Hi, I’m Judi Otton with GrowthCast and today we are going to talk about my very favorite of the three big financial reports and also probably the least understood of the big financial reports. This is the Statement of Cash Flows. This report shows you, for a period of time, a month, a quarter a year, what cash has come into your business and what cash has gone out of your business and helps you answer the question where the heck is all my money?

Now this report, I’m not really sure why more people don’t use it. I don’t think it’s terribly hard to read. It comes in three sections.

The first section shows your cash flow from operations. This is the business that you do. The reason that this is different from what you’ll see on your P&L and your income statement is one, it takes into account money received and money that’s gone out, not necessarily what you’ve sold or invoiced or the bills that you’ve entered into your system. So there’s that timing issue that we’ve talked about before. It also eliminates things like changes in inventory, changes in your accounts receivable, and things that show up on the P & L like depreciation that doesn’t have a cash effect.

The second section of the Statement of Cash Flows is financing and this shows the cash impacts of getting loans and paying back loans. This is another big reason why you may look profitable but you don’t have any cash is that you’re servicing your loans, you’re paying back your loans.

And the third section on the Statement of Cash Flows is the investing section, any property or equipment or securities, stocks, bonds, whatever that you might be investing in or have sold. The cash impacts will be shown here. As always, there’s an example, (https://growth-cast.com/cf) take a look at it here and if you have any questions, feel free to reach out.

This is Judi Otton with GrowthCast and I’ll be back next week we’re gonna talk about the rhythm of looking at these three financial statements and other financial statements so that you’re getting enough information without making yourself too crazy. I’ll see you next time with your next Fiscal Fitness Tip of the Week.